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21st Century Banking and the Medieval Catholic Church

October 29, 2012

Odd title, no?

Well believe it or not, this topic actually came up in an internal meeting and – as the historian amongst our collective of bloggers – it got me thinking.

Let me set the scene for you:

I am currently working with a client that operate in the realms of capital markets and trading and I, like many of you out there, have some prior knowledge of the financial services sector.

Or at least so I thought.

The layers and complexity of the transactions being made within these organisations are beyond comprehension of most people. There’s a great exchange in Robert ‘Pesto’ Peston’s new book where he asks a senior banker to explain particular derivatives products in a way his grandparents could follow and not even the great man himself, with 30 years’ experience in the city, could understand the explanation offered!

(Incidentally, there’s a beer on offer for anyone that can explain Credit Default Swaps to me)

So how is this like the Catholic Church? Well, you see, the church had similar layers and complexities in the medieval times – most practicing Catholics couldn’t event speak the language of the church, so opportunities to question, validate and improve were limited by the closed-off and isolated nature of the church and it’s hierarchy.

Like modern-day banks, Catholicism meant big bucks and it became an instrument of control over the populace.

Yes, I know its tenuous and derivative (*snort*) but it arguably serves a good point.

Now I’m not some grass-smoking hippy trying to bring down the world of financial services, but I do see young consultants almost as modern-day Luthers and Calvins, questioning the status quo to bring about changes in the way financial services operate.

Peston lists five ways that banks can be fixed, and as people who work in the realm of advisory and consultancy services, I firmly believe consultancy firms are best-placed to challenge the current state and instigate changes that go beyond those listed below in fixing the state of our financial services and markets.

Peston’s Lessons:

  1. Banks must split their investment and retail operations.
  2. Business leaders advocate government spending on infrastructure as a means of lessening austerity.
  3. Buy today, pay tomorrow is no longer feasible as an option – stop society’s reliance on credit
  4. The Germans have the economic strength to create a banking union — the prelude to a full merger of Eurozone balance sheets – and could theoretically take it on the chin. (OK, admittedly not much the average consultant can do to influence this one!)
  5. The widespread shareholder uprising in early 2012 was a start — we nearly all own shares (often via pension funds) and can all leverage pressure on big business and encourage greater responsibility and accountability

 

His lessons aren’t exactly a revelation (sorry, getting carried away with the puns), but they are useful to bear in mind for those of us that do consultancy roles in financial services. We’re not going to nail our theses on the doors of the Bank of England, but we can suggest, advise and influence the decision makers that matter and help them make the changes as quickly and efficiently as possible.

Think about it, even if you’re a BA working on a small efficiency programme being run in a the back-office of a small investment bank, you are working to lower that bank’s overheads; meaning they don’t need to rely on high-risk, high-margin transactions – it involves everyone!

So let’s arm ourselves, as young consultants, with the necessary tools: Develop subject-matter expertise in an area that interests you, understand how your (and your firms’) expertise and specialisms lend themselves to aiding changes in financial services and lastly, get governance , communications and risk management absolutely nailed down – this isn’t a journey that can be taken in discrete steps, it is a sea change. Share your successes and start building a groundswell of evidence and opinion that financial services can be changed to better suit the needs of the economy!

Peston asks the banker in charge to explain these products in a way his grandparents could follow. But after a while he realises — and if this was on film, it would be a sort of slow-motion zoom moment — that “I was actually finding it incredibly difficult to understand what the hell he was talking about”. And if Peston, with almost 30 years’ experience of City jargon, wasn’t getting it, then who on earth was?

“If those guys on that trading floor were doing something that was marginal to the global economy, then of course it wouldn’t have mattered,” he says now, wearily nursing a cup of black coffee at his publisher’s office on Euston Road. “But this was a huge global industry, with hundreds of trillions of dollars worth of these products being created. I know people who sit on the boards of banks and most of them have the same level of sophistication and knowledge of these things as I have… and it was at that point, a sort of Damascene moment, that I first realised the scale of this industry and started thinking how incredibly dangerous it might be.”

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