Banks have not been enjoying a good press this year. Following the fraudulent conduct of banks associated with the collapse of cryptocurrency exchange FTX in the Bahamas came the demise of Silicon Valley Bank and others that built their business model on lending and supporting offshore crypto exchanges. Meanwhile in the UK, Coutts Bank began arbitrarily closing customer accounts.
The US is unique in having some 4,000 community banks, whose lending supports local infrastructure, especially in commercial real estate. Aside from a few bankruptcies, these banks have so far escaped any major dislocation. Their share price reflects that as a sector they are now making a comeback from panic dumping of anything associated with regional banking risk to investing in the sector at much reduced share prices. The fact that the government has again bailed out the banks creates moral hazard. Risk managers are not incentivised to manage risk prudently if they know that they will be bailed out for failure.
In the US, banks lost customers as well as revenue, their problems compounded by the speed with which customers were able to transfer funds from low yielding deposit accounts to higher yielding US Treasury and money market funds by using applications on a smart phone. The development of Fintech is nibbling at the banks' hitherto guaranteed lunch, replacing slow cumbersome expensive trading systems with secure, fast, inexpensive solutions. When bitcoin and blockchain solutions are finally regulated, this will enable customers to find more attractive solutions outside the banking system altogether.
Fintech has also been the saving grace for customers embroiled in the recent Coutts scandal in the UK. Customers whose bank accounts were arbitrarily closed have at least managed to move funds around by using Fintech solutions. This series of account closures underlines the fact that there is a toxic culture at the top, just as we saw when those responsible for failure in the subprime credit crash and world banking crisis were rewarded - remaining unpunished to this day. In the case of the National Westminster Banking Group (NatWest), the bank owes its very existence to having been bailed out by UK taxpayers, who own some 38% of the bank shares. Heads have rolled at the top of NatWest and Coutts, but not before they received huge remuneration packages paid, of course, by the customer.
A culture of what economists call regulatory capture is all-pervading. The regulated control the regulator. Banks call the shots, and the regulator meekly adds its consent: in effect a giant Ponzi scheme. Bank licences, regulation costs and fines pay regulator's fees, and politicians who police the regulator enjoy the financial support of the globalist corporate giants, who in turn receive their rewards from the politicians and governments that serve them.
A bank should have no other values than to treat their customers fairly and with respect. Monitoring social media has nothing to do with banking and may be a serious breach of the data protection law. When we deposit capital with a bank, we become an unsecured creditor and will receive our capital back when the bank chooses. Coutts Bank has been caught in the headlights, engaged in shady practices with customer data and zealous overreach in closing accounts of customers whose views they do not agree with. How many more banks are engaged in breaching customer confidentiality whilst engaging in other nefarious practices?