Why do people dislike banks?
Bankers got a black eye in 2008 when the nine largest US banks took government money to shore up their capital. The US banking system was facing a crisis of confidence that was causing an institutional run on its liabilities, threatening to turn the economy’s recession into a depression. While it was controversial, most people believe that the bailout helped avoid a much worse economic outcome.
But apart from this most recent escapade, people have been bothered by big banks for a long time. Stories about executive bonuses totaling tens of millions of dollars aggravate us. There’s something sleazy about making big money for yourself with other people’s money that goes back to Thomas Aquinas and natural law. That’s part of the reason most states have statutes that limit interest rates on loans.
We know that getting money from depositors that have it to borrowers who need it is an essential economic activity, but uber-wealthy bankers annoy us—more than rich tech entrepreneurs or sports stars. Former Fed Chair Paul Volker has said that the only real financial innovation for consumers in the past 20 years has been the automatic teller machine. And the level of financialization in our economy is troubling.
But the financial system is facing serious issues right now. Changes in regulation, in demographics, and in technology will create winners and losers among both big and small institutions over the next decade. Now more than ever, financial companies will have to adapt—or die.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!