The Challenges of a Post-Crisis World
As a result of the global financial crisis people no longer trust banks. This means that the time has come to revisit some of the fundamental principles underlying the operations of the banking sector. It also means that only those financial institutions that act responsibly and ethically in pursuing their goals and objectives are likely to survive this sobering challenge.
In recent years banks have been at the centre of everyone’s attention: many people believe that today’s global economic crisis was a result of their adventurist policies. Putting it bluntly, public trust in the banking system has been undermined.
In the eyes of ordinary citizens the modern financial system is exceedingly complex, and most people view the evolution of the global financial crisis as follows:
1. People brought their money to the banks expecting them to act reasonably and to protect their property from excessively risky speculations.
2. Bankers acted recklessly and rushed to the ‘casino.’
3. They used other people’s money to place generous bets, and lost. Yet they made sure they would be paid their commission regardless of whether they stood to win or lose.
4. As a result of this reckless policy, banks went bust, forcing governments to intervene and help them, using taxpayers’ money to save the economic system from total collapse.
5. However, it seems that bankers came out of it unscathed. Despite the detrimental outcome of their actions on the economy as a whole, they continue to collect their huge bonuses scot-free.
Is it really surprising that the public began to doubt the bank’s role in the life of society? The time has come to revisit some of the fundamental principles underlying the operations of the banking sector, to restore public trust and confidence.
Money is still the best medium of exchange and the best means of cost accounting and value conservation. We may have failed at finding a more acceptable alternative, but this could change at any moment. Technologies continue to evolve at a breathtaking pace and it would behove us to continuously revisit this premise. We should not be blinded by customary assumptions if we do not want to miss out on new opportunities. For example, the digital currency Bitcoin has been created out of nothing. Nowadays, it is mined as if it were a natural resource. This currency is secured by nothing but demand. In 2009, one virtual coin was worth six US cents; in December 2013, it was valued at around 1,147 dollars.
There is nothing wrong with making money out of money, neglecting the actual value added. The market waved its ‘invisible hand’ to send a clear-cut signal: If we want to get rich without creating any value we stand to damage the very fabric of our society and people will inevitably suffer. Making money out of thin air cannot possibly contribute towards long-term well-being and prosperity. Once upon a time we relied upon gold as a universal common denominator and a common measurement unit. This approach remained effective for some time. In today’s world the only reliable point of reference can come in the form of the goods and services that we create.
The banking system is the best mechanism for channelling investments into efficient enterprises at the best possible time. Because of the events that have unfolded over the last six years, the level of public trust in the banking system has gone down, and pressure has been brought to bear upon governments to overhaul banking regulations and adopt a tougher stance vis-à-vis the banks. Many investors have sought an alternative to banking services, while many enterprises have tried to do away with bank loans.
In summary, it would be safe to say that the leaders of today’s banking sector have to invent a new approach to enable banks to achieve business goals and objectives through responsible and ethical means. Such a plan should meet the following requirements:
- Rules of ethics for bank clerks. Since people trust bank clerks to handle their money, the latter should adopt a responsible attitude towards their work. Their level of responsibility should be regulated.
- Transparency and the straightforward exchange of information. Bank employees must be prepared to explain at any time both investment opportunities and the risks associated with them.
- New governance mechanisms in the banking sector. Since banks enjoy such considerable influence in society, we need to set up sustainable mechanisms to make sure this influence is not abused.
- Standards of corporate social responsibility. Banks enjoy a unique position as profit-driven commercial organisations and at the same time key infrastructural institutions. For that reason, banks should operate taking into account the interests of the local community they strive to serve.
- A new approach to work. Banks and their employees must adjust their approach to their work in a timely manner, to account for current trends and to forecast potential needs in the future. This should be manifested not only in the introduction of innovative services, but also in the acquisition by employees of new skills.
Banking transactions involve much more than merely managing cash flows – such an approach would be too narrow. Banking transactions are one of the most innovative tools that we have ever come up with to enable us to constantly improve our quality of life and pursue our dreams and aspirations for a better future. Today, the time has come to accomplish another breakthrough and turn our banks into the financial institutions of the future.
