On Wednesday, the Financial Times ran a story on the difficulty that small Spanish companies were still having getting bank finance, the article then morphed itself into a broader banking debate on the disappearance of the traditional bank manager. Those who watched Dad's army many years ago, will remember the bustling Captain Mainwaring, bank manager by day, home guard by night. A bank manager in those days would have known every customer who banked with him. If the customer wanted to borrow money, the manager would already know how likely the customer was to pay it back. The bank manager would have been plying his trade for many years, he would know the right questions to ask, he would know the customer’s personal circumstances and assess the risk accordingly.
I sometimes refer to my father in my blogs, who started out life as a bank clerk in Dawlish, South Devon, before ultimately becoming Chairman of Schroder PLC. He often expresses the views that one of the problems with banks today is they are no longer run by bankers. He was recently invited to meet a representative of his local HSBC branch. He did so, I imagine, more out of curiosity than a desire to discuss any financial promotions they may wish to entice him with. The meeting started and true to form my father was asked about his investment policy. My father replied whether the man behind the desk knew anything of my father's background, the reply was unsurprisingly no. My father has banked with HSBC for over 40 years, and the clerk who met him said that all he had was a blank sheet of paper. How could he possibly be in a position to advise my father, or to judge my fathers circumstances?
Are banks too big to fail or are they too big to manage their customers? Banks lending too much during the good times only to be forced to rein that in during the bad times is not a new phenomenon. Perceived wisdom is that a lot of the problems that resulted in 2007 recession, were caused by banks lending inappropriately. I venture to suggest the problems were not only related to avarice but also banks not fully knowing the customer.
The world of finance is bloated with “risk managers” and the world has never felt riskier. When I started out life as a trader in the equity market, there was one risk manager: the head of trading. He intuitively knew, due to his years of experience, a good risk or a bad one.
How can you judge a risk if you don't know the person in detail who is taking the risk on? Most business people I know would not dream of doing business with someone they did not know. As internet banking continues to develop the high street banks will probably continue to fade from our high street. That in my view can only continue to widen the gap between the bank and the customer. That widening gap will lead to greater mistrust between the two parties that can only lead to more inefficiency when it comes to bank lending. Those that maybe should get a loan won't, and vice-versa.