Banks that are too big to fail or TBTF are by definition also too big to manage or TBTM. In Part III of the series we look at the role played by customers in this phenomenon. The link for Parts I is here and for Part II here.
In Part II of TBTF Means TBTM we looked at how the belief that the markets are a zero sum game has created a banking culture obsessed with the size of a bank’s market presence and to what extent it can exert dominance. Allied to this philosophy and in many ways intrinsic to it, has been an approach where banks have strived to become all things to all customers.
All things to all customers by definition imposes a requirement on banks to offer all products or at the very least as many products as possible. For a number of different reasons this does not make any sense. Foremost amongst these reasons is the fact that it is highly unlikely that a single institution can be proficient in all products.
The following anecdote illustrates the point. Continue reading
Posted in Banking, Business
Tagged ABN AMRO, asset management, Banks, Business, Customers, economy, Financial Crisis, Investment Banking, markets, Risk, TBTF, UBS, Values
Banks that are too big to fail or TBTF are by definition also too big to manage or TBTM. In Part II of the series we look at the role played by the growth of products and markets in this phenomenon. Part I can be found here.
What is it about the industry that makes banks so susceptible to becoming TBTM or too big to manage? As noted in Part I, egos and megalomania do play a significant part. However, they are definitely not the whole story.
For many bankers, performance is synonymous with size. Bankers take it as gospel that the greater their share of a particular product market, the greater the profits to be earned from that market. It is obvious that such a proposition does not necessarily hold true.
Posted in Banking, Business
Tagged Banks, Business, credit derivatives, economy, financial crises, Financial Crisis, Goldman Sachs, herd mentality, JP Morgan, markets, Merrill Lynch, Mortgages, Risk, Risk Management, Subprime, TBTF
Banks that are too big to fail or TBTF are by definition also too big to manage or TBTM. What does this tell us about the state and the mindset of senior management in our major banks?
In a 2009 article entitled A House Built On Sandy (Sandy, meaning Sandy Weill, the main architect of the modern Citigroup) The Economist describes the decline of Citi in terms which are less than flattering. The following extracts tell the tale:
“TOO big to fail, too shit to buy” is the way some Citigroup insiders describe their employer… Acquisitions were poorly integrated. Cultures overlapped rather than melded)… It may be inevitable that some banks are too big to fail; but the lesson of Citi is that they can also be too big to manage.
Posted in Banking, Business, People
Tagged Banks, Business, Citigroup, Derivatives, economy, Financial Crisis, Fred Goodwin, Management, politics, RBS, Risk, TBTF
Western society is now facing economic challenges that, until recently, were almost inconceivable. Budget deficits, austerity measures and overall economic decline, in both relative and absolute terms, all appear to be the order of the day.
As a consequence, the liberal democracy which the west has held aloft like a prized-possession for so long, is also now under threat. Greece and Italy are being run by appointed technocratic governments, the EU suffers from political gridlock and the US political system is in rigor mortis.
Most people will either think or want to believe that all this has been triggered by the banks and the subprime crisis which they brought about. However, this is not entirely true. As a matter of fact that would be putting the cart before the horse.
History tells us a slightly different story—and that is that almost every major banking or financial crisis of the past 40 years has been accompanied by great economic and political issues and events that in many instances have had a global impact. The subprime crisis was no different.
This is just one example of what Clearing The Bull is all about. The book looks beyond the conventional rhetoric and belief systems to not only better understand the nature of financial crises, but also why banks need to do a much better job at managing both their internal and external environment.
Available for pre-order!
Posted in Banking
Tagged Banks, Business, Central Banks, Clearing The Bull, Controls, Credit, Deregulation, Derivatives, Economics, Federal Reserve, Finance, Financial Crisis, Governance, Government, Hedge Funds, Human, Human Assets, Investment Banking, Leadership, Management, Regulators, Risk, Securitization, Subprime, Subprime Mortgages, TBTF, Too Big To Fail, Transformation, Values