The future of banking

As the current financial crisis unfolds, I’ve been wondering how it will affect me as an individual in the future. Hamish McRae reckons it’ll be like it was in the sixties (but not in a good way 🙁 ):

It is easier in a way to see the situation in a year or two’s time than it is to call the detail of the next few weeks. What we can see is a world where it will be much more difficult to borrow money.

For those who can remember, it will be more like the 1950s and 1960s. Then, if you wanted a mortgage, you had to have built up a deposit in the building society or bank that might lend you the money.

People would open an account with two or three societies and stick as much money as they could in each so that if one would not give them the loan they could try another.

Other interesting speculations on the future of banking can be found in Casino Capitalism, on the BBC’s iPlayer service, available until the 5th of October. One conclusion from that programme is that banks will become more like utility companies, and the idea that banks can be innovative businesses in their own right is wrong – banks should provide basic financial services based on sound risk management (see below).

It’s worth listening to. Also if you haven’t read Charles Stross’ thoughts on the banking crisis, go do so:

…banking is the art and science of risk management. (You have a pot of money. You want to use it to get more money.

Do you lend it to person A, who you figure has a 25% chance of defaulting on the loan but is willing to pay you 1% per month in interest, or person B, who has a 1% chance of defaulting but can only pay you 0.5% per month?

If you picked person B, congratulations: you’re a good banker. If you picked A, you’d better hope there’s a government hand-out in your future.)

[image from Odalaigh on flickr]

3 thoughts on “The future of banking”

  1. … it’ll be like it was in the sixties (but not in a good way 🙁 )

    And a world where people who blatantly can’t afford to get in any more debt aren’t cajoled into doing exactly that is bad how, exactly? I probably sound pretty curmudgeonly saying that, but I’m not going to apologise for it. A temporary cessation to the control of the desperate by the power of the greedy sounds like just the ticket for a troubled planet – a bit of austerity all round might make some people make up and smell the environmental coffee, too.

  2. I don’t condone lending money to people who can’t pay it back – but I think restricting credit for those who wish to buy a house or invest in a business or grow capital would be a bad thing.

    It would be unfair to limit people’s access to credit just because the bankers didn’t do their jobs.

    We do owe too much as a nation and as individuals.

    But there is a balance: and it should favour relatively easy credit, rather than austerity.

    In order to solve the problem of climate change and environmental collapse we need massive capital investment from nation states and large businesses.

    But we also need small businesses and decentralised, entrepreneurial ventures in areas like local, carbon-neutral power generation, recycling, low-carbon business-models, high-intensity local agriculture etc.

    These sort of developments need capital and they need credit.

    “Austerity” won’t help the environment – poor people are a lot less inclined to vote for politicians who say they’re going to direct the public finances to solve a problem that will emerge over the next two or three decades when the voters want bread and circuses now.

    A return to a 1950s/1960s regime of tight credit would not be a good thing as far as the environment is concerned.

    The bankers screwed up, and this episode highlights the need for regulation to be applied to the derivatives trade as well as standard equity markets.

    It also highlights the need for bankers to be incentivised to do proper due diligance and general risk-analysis [say: bonuses held in escrow for a few years so that the long-term effects of deals are considered].

    And I for one would rather not have to fellate my bank manager for a loan.

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