Blah blah blah banking competition blah blah….

Why do banks do anything?  Because bank executives will get a big bonus.  Usually the interests of the executives is aligned to that of shareholders, but executive management strategies start and end with bonus’ which drive behaviour.

If you were a banker, and you saw opportunity to get a big bonus and a pat on the back from your bosses/shareholders you would take it.  This is why banks are putting up prices – its a sure-fire way to hit your sales targets.  This is why banks are not handing loans out to high risk SMEs – no point lining up your sales targets with a price rise only to lose a whole lot of cash out the back door because you’ve lent to high risk businesses and the economy has done something weird which it is inclined to do at the moment.

So how do you fix this?  If enough shareholders agreed that bonus structures should be structured around public sentiment and not organisational profitability, and executive KPIs were adjusted accordingly, then you might stand a chance.  But this is asking large investment managers (the shareholders with the most say) to forgo returns and their own management bonus’.  Pretty unlikely I’d say!

The leaders of our banks are very smart, highly educated people.  You need to be to rise to the top of these organisations with more than 30,000 people.  If you point them in a direction, then most of these people will achieve what you set for them.  Its what they do.  The problem here is not the banks.  Its the direction that has been set for them by the investment managers and shareholders.  That said, the bank executives do need to watch out as I would guess there is only so long before adverse community sentiment starts to impact on profitability (and bonuses….)