19 July 2018
Stanley Epstein
Stanley Epstein

Stanley Epstein

Stanley Epstein - Citadel Advantage Ltd

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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Has the financial industry learned nothing?

17 July 2009  |  2679 views  |  0

I have been following recent press reports with a growing sense of unease. What I am reading is that some of the big banks, including some that were only bailed out by their respective governments in both the US and the UK less than a year ago, are back at the casino tables. They are now shopping around for "talent" and they are willing to pay plenty for it too. I shudder when I read about a "star" bond trader being given a guaranteed two year deal with a $6 million payout for year one alone. Another has been lured by a $2 million package and so on.

The minute that bonuses and commissions come into play the client's interests go out the window. The only person in the game is the salesman and he doesn't give a fig about the client, his employer or anyone else but himself. As for the bank? Well it is back to the bottom line again - profits ... more profits ... excessive profits ... obscene profits ...

Have these banks learned nothing from recent events?

Firstly, we have just come through a most distressing period of revelations about excessive executive remuneration in the banking industry. We have witnessed disgraceful behaviour by former bank executives as they steadfastly clung to their undeserved riches, riches derived from the banks that they so ably steered to ruin.  

Secondly, there is something positively indecent about banks paying for big "star" salesmen. And, sorry guys, whether you call yourselves "traders", "dealers", "brokers" or whatever, you are still salesmen, just the same as the used car dealer on the corner.

Banking was supposed to be a process of financial intermediation - allocating the surplus resources of depositors to meet the working capital and other needs of borrowers like commerce and industry. Banking was never intended to power an exclusive banker's casino where depositor's funds could be put at risk in a market whose vagaries are not even known never mind fully understood.  

Barely a year ago, just to save themselves, banks pulled the rug from under the feet of all those millions of commercial and industrial clients. The resulting implosion, as the crisis spread from Wall Street to Main Street, triggered the worst recession in living memory. Unemployment has soared. Business has stagnated. Just witness a couple of headlines from the Wall Street Journal on 16 July; "UK data reflects weak jobs market", "H&M sales dropped 5% in June", "Levi's posts loss", "American Airlines parent posts loss after traffic falls".

So where to from here?

Many banks have been saved due to the largesse of the taxpaying public in the form of bailouts and other arrangements. Yet many of these selfsame banks commercial and industrial clients have gone to the wall - wiped out in a matter of months. Tens of thousands are unemployed. Business activity will take years to recover. Yet it is business as usual at the "Bankers Casino". If there ever was a need for urgent meaningful and intelligent regulatory reform it is now.  

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Stanley is a Director and co-founder of Citadel Advantage Ltd., an international consultancy to the financial services industry that provides specialist services and training in the areas of operation...

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