It’s a normal reaction in business to cut back resources wherever necessary when times are tough and the outlook is bleak. Could the financial crisis in 2008 buck the trend in 2009 and 2010? It’s worth looking at the prospects in 2009 dispassionately, rather than with the usual knee-jerk reaction driven by the demands of accountants and balance sheet.
First difference to normal market downturns is that governments now own big stakes in the banks. There has been a gigantic investment of tax payer’s money into financial services to hold up the system whilst the global economic pressures begin to stabilise. And stabilise they will, once the conglomerate of governments have coordinated their responses and imposed policies designed to bring the world out of recession. So just how stupid will it be, if as the world begins to recover, the banking industry is unable to support the growth due to a lack of qualified people or inadequate systems. But it seems that’s where we are heading, having sacrificed several regiments to try to secure their position, the banks have hunkered down in their foxholes rather than coming out to greet the reinforcements who have arrived to relieve them.
The finance industry got into this mess by not being capable or able to manage their lending business and over taxing their risk systems by investing enormously in products they could neither understand nor account for. This was a clear weakness of people but also procedures and processes within a market and regulatory structure incapable of meeting its due diligence and operating effectively.
Surely these apparent failures have to be addressed with some urgency before the market begins its growth curve. If people have proved a weakness it makes no sense to relieve them of their jobs when their experience of the business can be utilised to learn and improve the market during a redesign process.
If the banks systems were incapable of providing the necessary data and support to enable management to manage, how silly is it to maintain and not replace these inadequate systems?
If the regulatory process has been incapable of regulating the international markets and complex products under its existing rulebook it makes little sense to continue as before. Any changes to rules normally entail systems enhancements or even replacement. Thus this looks like a budget for improvements is needed and not a reduction.
Of course before any changes are made the industry does need to reflect and understand what went wrong and how to it put it right. Governments will be heavily involved in the recreation of a new market order and there will almost certainly be new legislation.
Although any new legislation will be preceded by a consultative review and no doubt have any number of committees. The committees will be global and representative of investors as well as those in the market and will take some time to issue recommendations for change. The issue is how much time?
Time as they say is of the essence and in global economic timescales we can anticipate that changes will need to be lightening fast. The healing process is already underway in financial services and the smart bank should not be looking at redundancy and scale backs but planning for growth.
Unnecessary projects can be canned and some staff can be jettisoned but these should be carefully selected so not to throw ‘the baby out with the bath water’. Planning and selection demands knowledge and thought and these are not something banks have ever been good at; as seen during the previous decades, with impulsive reactionary management chasing the market up at huge costs only to follow the market down at greater costs.
Prudent banks should consider carefully what their future operational requirements might be and not be so concerned with short term problems. The future will be more demanding of people and systems than ever and short termisum will be a real threat to the prospects of banks. Equally smart banks can plan and build for growth and take first mover advantage making profits along the way and leave the dinosaurs behind.
The future starts today has your bank started planning for growth or can you hear the roar of a dinosaur?
* Gary Wright, is an industry analyst and ceo of B.I.S.S. Research, a research firm and benchmarking service for the financial industry.