When old maids bicycled to holy communion and men drank warm beer, the bank manager knew each of his customers. He knew whether they were honest, how stable their job was, and whether he could risk a loan to them. You could deposit money with the bank without having to show your passport and a gas bill. You could get a mortgage limited to a modest multiple of your salary if you had already saved for a deposit.
I like the modern world, and live for the future to be better. I love the anarchic democracy of the internet, the sleeker greener and faster cars, the sophisticated TVs and the organic products that the modern marketplace has created. I even like the ability to use some modern financial instruments to manage risk. In this one area of banking ,however, there was commonsense and magic in the old arrangements that we have lost at our peril.
We need a new generation of bank managers in the branches of our largely nationalised banks who take time to size up their customers and work out how much they are good for when it comes to lending. We need them to nurse many customers through this damaging downturn, correctly identifying those people and businesses who will be able to honour their debts in the fullness of time. They also need to be shrewd and tough enough to close down the problem loans where it is unlikely they will get the money back, before more is lost. It is difficult to make these judgements from head office, or by running a new computer programme based on clever mathematics. It’s the people, stupid, in the end.
What is true of the local branch should also be true of the nation’s Bank, the Bank of England. The Bank is the government’s way of running the money markets and banking the banks. Just as you or I go to RBS or Barclays for our current account, so the big banks bank with the Bank of England. Their bank manager is the Governor.
I think it was huge mistake to demand much more regulatory capital in a hurry last autumn, and to force three big banks to go to the government to get more share capital to meet this requirement. It meant the taxpayer was forced into buying banks shares at prices which now look very high. We have already lost a packet on the deals. Instead, if the banks needed financial help, their bank manager should have given it privately, behind closed doors, and on loan terms which forced those banks to sort themselves out.
I find it offensive that taxpayers often earning far less than the bankers are being asked to stump up huge sums from their taxes and future taxes to bail out high cost banks. Putting so much money into them without proper banking terms has allowed them to go on paying megabucks and mega pensions to chosen employees and leavers as if nothing had happened.
If the Governor had been asked to be their bank manager instead of the government becoming their owner, it could have been very different. As a tough and experienced bank manager he would have demanded a plan from them to get back into profit as quickly as possible, He would have asked them to raise more of the money they needed by selling some assets. He would have told them to cut the size and risk of the Investment banking arms immediately. Taxpayers should not be bailing out or standing behind casino banks.
He would respond robustly to the nonsense that these banks are so complex you just have to pay up or else. He would have told them to become less complex as quickly as possible. He would not have accepted the government argument that these banks were so large, posing a risk to the whole system, that they simply had to be given huge sums of new capital. He would have said to them that he had no intention of letting them go down. Nor would he featherbed their pay and bonuses, or put up with atrocious management of investments in dangerous financial instruments.
All is not lost. We still need the intelligent bank manager approach, both on the local High Street and at the Bank of England. Alistair Darling should stop acting as subsidiser of first resort to these badly run banks, and let the Governor – or Labour’s new bank quango chief -get with the job of making them shape up. Couldn’t their Chief Executive start by telling all the highly paid staff in the nationalised banks that they could keep their jobs only if they accepted senior civil service pay with no bonus, until they have got their banks out of the losses and onto a proper financial footing?
I don’t drink much warm beer myself, but my constituents would love to be able to carry out financial transactions again with bank managers who know their customers and who do not need to have a gas bill, passport and ten page form every time you want to do something. I would also be greatly relieved if I knew the national finances were being conducted with the taxpayer looked after. The present situation means too much risk and too much expense for taxpayers, and means delaying sorting out the problem banks.