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Wednesday, February 27, 2008

The End is Nigh

Hector Sants, the chief executive of the Financial Services Authority (FSA), has added his voice to the Greek chorus of doom and gloom that is currently serenading the financial services industry.

He has stated that the era of cheap borrowing by British banks is over. As such, in his view, the banks will revert to more "old fashioned" financial products and "relationship" banking.

Sants makes his comments at an interesting time for the FSA, as it is about to publish an internal review of its handling of the Northern Rock crisis.

He has already admitted that, although the FSA identified the risks in Northern Rock's business model, it failed to communicate adequately the potential problems and to force the mortgage lender's management to address the risks.

In other words, the FSA was asleep at the wheel.

He attempted to redirect the "story" by talking about banks and the ease of obtaining credit. He told the BBC:

"Banks themselves need to give consideration to how their business models will need to adapt to the changed market circumstances they have seen.

Secondly, we will be looking for firms to treat their customers fairly in these arguably more difficult times in prospect

He predicted that banks would stop pushing complex financial products onto their customers, and instead get know their clients in the long term.

Whilst I agree that the market has changed, and that banks will change their approach, I do not agree that we will see them improving the relationships with customers or indeed even trying to "get to know them".

The credit crunch is a direct result of the greed and stupidity of banks and other financial institutions. They have no intention of being held accountable for this, and are passing on the costs of this fiasco to the retail consumer, via increased interest rates and credit restrictions.

The banks are now so highly automated and reliant on computer driven statistical analysis of their customers, for making decisions, that they will never return to "relationship banking".

Credit decisions are made by computers and statistical models, the banks merely use humans as the interface to try to "explain" (ie obfuscate) their often "bizarre" decisions to their helpless customers.

As regards not trying to push complex financial products onto customers, that is tosh. The banks' greed has not been abated, as soon as they come up with another "pyramid" style scheme (such as sub prime mortgages) they will most assuredly pump and dump it on their long suffering customers.

The FSA needs to wake up to the reality of banking (greed and stupidity) in Britain in 2008, otherwise it will have many more Northern Wrecks on its hands.

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