Banks can learn from retailers
It's been a tough recession for retailers, although the better ones are emerging from it stronger relative to their peers than before the deluge.
That's obviously true of the big supermarket groups. But it's probably also true of Next and M&S, which are bouncing back faster than might have been expected.
Next, which this morning announced figures for the first six months of its year, generated a 7.6% increase in operating profit from its eponymous brand, on the back of flat sales (well a rise of 0.9%).
Pre-tax profit for the group as a whole rose 6.9% to £186m and the dividend was pushed up 5.6%.
Not a bad performance at a time when - for a couple of months at least - the British economy was contracting at an annualised rate in the region of 10%.
Most of our big banks would be sick with envy.
And perhaps they could do worse than to learn from the relative success of our better store groups - and especially in the way that a Marks & Spencer or a Tesco cherishes the relationship with individual customers.
Which is a conclusion that can be drawn from two insightful contributions to the debate about how to fix our banking systems: a speech called Credit is Trust by Andy Haldane of the Bank of England (him again); and a paper entitled Narrow Banking by John Kay (published by the Centre for the Study of Financial Innovation).
Both provide compelling arguments why the proliferation of the giant universal bank - banks like Royal Bank of Scotland, Barclays, Citigroup, Bank of America, UBS, BNP Paribas and so on - have been bad for shareholders and appalling for the global economy.
In different ways, they arrive at a similar conclusion: that a healthier banking industry would have a greater variety of banking institution; and there should be many more specialist or narrow banks, concentrating either on retails services for individuals and small businesses or on the more sophisticated products (the casino services) apparently still desired by big companies, investment institutions and governments.
By the way, if you agree with Haldane and Kay, you will note with some alarm that this kind of industrial reconstruction is nowhere near the agenda of the G20 leaders of the world's biggest economies for their forthcoming meeting (perhaps because, as Prof Stiglitz sniped in an interview with me a few days ago, banks have disproportionate lobbying clout, especially over Congress).
Probably the biggest problem with the universal banking model is that it accentuates the propensity of all banks to conduct themselves as manufacturers, rather than retailers.
Of course, they talk the talk of providing customer service.
But the profit is not in the long term relationship with clients whom they barely know.
The profit is in the opaque fee and interest-rate structure of the credit card, or the mortgage, or the business loan, or the credit default swap, or the collateralised debt obligation.
And this manufacturing mentality has been worsened by technological and market innovations.
The final nails in the coffin of Captain Mainwaring - the apocryphal grumpy bank manager who knew everyone in his local community - were automatic computerised credit scoring and securitisation: why should a bank bother to know any customer when it could lend to him, her or it on the basis of generic data and could flog the loan (packaged up with loads of others) to another bank or an investor as an asset backed security or a collateralised debt obligation?
Of course, what's both hilarious and tragic about the evolution of universal banks into pump-and-dump cowboys is that too many of them believed their own sales patter, and kept too much of the crappy securitised loans as stock in their own warehouses, as assets on their own balance sheets.
What's to be done?
Well, a good starting point would be to remind ourselves why taxpayers in Europe and the US have bailed out the banks to the tune of $15trn, or more than $2,000 for every person on the planet.
It's because there is a utility element of banking that we can't do without - which resides in the transmission of money, in providing basic credit to individuals and businesses, and in providing a safe haven for savings.
I am not claiming that defining the scope of the public-service utility is the easiest job in the world. But nor is it impossible.
And the important point - which most banks seem to have missed - is that in effect the public-service utility bit of what banks do has been nationalised almost everywhere: finance ministries and central banks provided unprecedented loans and guarantees to the banking system in order to preserve the integrity of the crucial financial infrastructure.
What many would conclude is that this public-service utility, which can never be allowed to fail, should therefore be totally separated from all other aspects of what banks do (all the other stuff, from proprietary trading in securities, to manufacturing derivatives, to flogging insurance, to investment management and so on).
The likes of Barclays or Royal Bank would not have to sell off or demerge their retail banks, although they might choose to do so. But their essential-service operations would have to be put into legally separate subsidiaries, where there would be no possibility of financial taint from their other activities.
Were this to happen, the ramifications would be big - and in the short term, pretty disruptive.
It would mean that institutional lenders to banks would no longer benefit from an implicit guarantee from taxpayers. So those lenders would demand that banks pay them a much higher interest rate, as compensation for the increased risk. And that could lead to significant shrinkage in banks' commercial banking and investment banking activities (no bad thing, some would say).
Something like this may occur, on one interpretation of what the Treasury plans in forcing banks to write "living wills" (or reconstruct themselves so that - in a crisis - retail depositors' money could easily be hived off from the rest of a bank).
But the general thrust of negotiations at an international level between central bankers, regulators and finance ministers is not in this direction, but is much more about salvaging the discredited Basel Rules on capital adequacy.
Those rules are arguably part of the problem, not of the solution.
Built into the design of the Basel Rules (hardwired in, to use the cliche) is an incentive to banks to game the system to maximise short term profits, and a disincentive to form relationships with individual customers.
In a diversified world of narrower banks, rather than our homogeneous world of universal banks, it would be possible to re-instate much simpler rules on how much capital and liquidity banks need to hold.
Here's the paradox: for all the evidence that supervision and regulation of banks was both inadequate and too "light touch" over the past few years, the fundamental regulatory structure could be simplified if banks were broken up into their utility and non-utility parts. And a proper competitive market, where there was parity of power and knowledge between banker and customer, might even in time emerge (or is that a hope too far?).