'The Fourteenth Banker,' Anonymous Bank Insider, Describes His Moral Crisis: 'The System Is Built To Be Gamed'
Can you give me some idea of the specific role you play at your job?
I deal [in] traditional bank branch activities, commercial lending and lending to businesses below the large corporate level.
It would be what banks did 30 years ago. We've gotten more sophisticated products now, but I still handle the traditional bank activities that involve getting money out into the community.
Over time, [securitized products and credit cards] were profitable and therefore it led to a diversion of resources away from the core business. And, in my view, and if you look at the at the growth of manufacturing and entrepreneurship versus the growth of the financial sector, clearly, if money had not been diverted to the financial sector, if those more resources and intellectual capital hadn't been allocated to sectors that don't create benefit for the society at large, you'd have more funding available now. And maybe we'd have more jobs now.
Is that dispiriting to you to see your industry drained like that?
The thing that I enjoy in my day-to-day work, is the thing is dealing with businesses and individuals and in a way that helps them. And I can say that it is much more difficult to do that today.
It sounds like there's a mandate to change the way you've been loaning money. Are you told to not make loans?
They're not being told not to make loans. However, the difficulty of making loans has gone up several magnitudes. And the metrics have changed. In the past the organization has valued loans, now the organization values deposits and fee-based products... The question is what does that mean? There may not be a directive given that you will make fewer loans, but the practical effect is the you will make fewer loans. But also the skill set of your people will change to being skilled at loans to being skilled at other things.
Are there fewer loans because of the downturn, or is this aversion to lend money a structural change prior to the recession?
There was a structural change prior to the downturn. In the downturn, two things have happened. One is there's less loan demand, because when the future is uncertain, small businesses are less likely to make commitments. But loan demand is not down as much as lending is down. So there are people who are qualified, and the fact is that it is much more difficult for them to find credit. There's also been an overreaction within the part of the bank...
Someone can make a simplistic argument that, well, there's an economic tightening going there and therefore it was appropriate to tighten credit standards. And that's true. But if you got more granular about it there are areas where there are losses and areas where the losses are [relatively small.]
Take small business. The losses in loans to traditional businesses are, as a percentage, a fraction of what they are in other areas. You can take credit cards, which is a high-profit area that you can do all sorts of things with -- securitize it, take them off balance -- those losses are now massive... Losses in small business or business banking are probably running between 1 and 2 percent per annum.
So you're saying that during a time when banks have been struggling to get back on their feet, they're actually looking to move away from low-risk products like traditional lending?
Nobody would ever say that. But what would happen [is] that you would begin to do [certain things to earn more profit]. There's a lot of other ways to effect that same result.