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Gary Wright

Gary Wright

Gary Wright - BISS Research

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EBAday is the annual event for European payments professionals organised by Finextra and the Euro Banking Association. This community has been created to deliver a forum for EBA delegates to exchange views on instant payments, open banking and new developments in payments processing and technology.

A New Era for Banking

05 November 2008  |  3518 views  |  2

Despite the financial crisis and the dramatic bailouts of banks it is far from the end of banking. It might be the end of banking as we have known it but as one door closes a new door opens.

Now is the time to modify banking and market structures and build a financial services industry that gives its customers a genuinely, good service at a lower price.

Without the devastation of this crisis it would have been much harder to strip away legacy impediments to change. The global financial markets can now be completely redesigned to produce a different landscape, which allows innovation of financial products and risks to be taken where necessary but with protections built in that prevent a systemic breakdown of the financial system, which has been a problem.

For decades banks have moved far away from traditional banking. The lines have become blurred between what is in the interest of their customers and that of making huge profits for themselves and their shareholders. Now there is absolutely nothing wrong with banks making huge profits, indeed it is at the very heart of the capitalist society. But problems arise when banks give scant regard for the protection of their customer's assets and when their employees unscrupulously go for gold risking those assets for greater profits and bonuses.

I have heard many bankers saying over the last year that they had to take personal risks with the banks money because of the competition in the market and the desire of the bank to appease shareholders. This keeping up with the Joneses attitude has been prevalent throughout banking and was a million light years away from how the banks operated in a bygone age. This has come to an end!

The new era is about a return to traditional banking services where assurance is given that customer's assets will be used frugally and where security becomes the watch word with:

  • No bank to sanction loans unless there is certainty of repayment.
  • No bank to lend without quality collateral.
  • Banks will look to increase margins between the value of collateral and the loan.
  • No bank to sanction high bonuses against unrealised profits.
  • No bank to extend their business into markets and products they do not understand or fail to have adequate systems to manage risks.

However, banks should continue to be creative and find new ways to increase profitability, as this is vital for the bank, their clients and also the financial services industry. The difference will be that they should not venture as much in the future without a certainty of risk reward.

The regulators are going to get very tough on operational performance and the strength of the banks balance sheet. A return to cash will be encouraged with increased capital adequacy requirements. There will be a new age of central bank collaborations bringing more consistency for risk monitoring and the global business activities of the banks.

The banking world should anticipate new draconian measures levied by governments, regulators and shareholders. Bankers will be held more individually responsible, there will be rewards well for proven successes but the might of the law will be waiting for a failure to act responsibly, for their bank and the client.

The new era of banking will encompass a resurgence of old style banking, leading to a world that is a little less exciting, but more secure and a much safer bet for customers and their assets.  



Comments: (2)

Roger Elwell
Roger Elwell - Yes Please - Colchester | 05 November, 2008, 21:31

Your first two bullets are not very realistic:

1)  there can never be CERTAINTY of repayment, as unforseen events (like unemployment) can occur.  Maybe you mean 'without the ability to repay being clearly demonstrated at the time the loan is granted", as was the case in face-to-face interviews in the past...?

2)  it has not been the case for decades (perhaps never) that all loans are made against collateral.  Car loans, for example, have always been unsecured, as have many home improvement loans and, as far as I'm aware, no credit card limit has ever been secured in this country (although I'm aware that in the US there used to be some secured card limits for very credit-dodgy customers).  What I think should happen is that, in the case of very large loans for house purchase, we need to return to the days of there always needing to be a deposit (say of a minimum 10-15%) and much more stringent rules around the salary multipliers - but then we need to be prepared to see house prices fall more dramatically than to dat - and stay down - with all the implications that will have for the poor souls that will be trapped in negative equity for years, perhaps decades.


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A Finextra member
A Finextra member | 24 November, 2008, 04:38


  • No bank to sanction loans unless there is certainty of repayment.
  • No bank to lend without quality collateral.
This is a most impractical comment.  First of all you have automatically eliminated all Credit Cards with the second comment.  The first eliminates 100% of all loans and credit cards forever, because certainty does not exist in the world of lending.  
If your point is as I suspect to improve the quality of lending then I question that as a target.  That is the job of shareholders.  If the point is to make the banking system stronger, and reduce the chance of future crises, then the better target might be to increase capital requirements.  That will have the impact of strengthening the system, and improving lending quality.

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CEO of B.I.S.S. Research, founder of the BISS Independent Accreditation for all systems and services provided to financial services companies internationally. Guest Lecturer at Reading University and...

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