Thursday, April 16, 2009

Will banking become boring?

What world of banking can we expect to see once the dust settles down in the present crisis? Regulations will be more stringent and three elements will be central to the new world of banking- higher capital, constraints on financial innovation, restrictions on bankers' incentives. Higher capital requirement in itself spell lower returns and hence lesser rewards in banking. In other words, banks and "shadow banks" will have a presence in the economy that is more consistent with the requirements of the real economy instead of becoming a world unto itself.

This is greatly welcome when you consider the atrocious waste implied by the disproportionate flight of high quality talent towards finance in recent years. Finance and IT are two sectors that have completely distorted the labour market in India- and we should welcome the fact that both are being put in their places.

More on this in my ET article.



I agree with you on banking but you are mistaken when you apply same logic to the IT industry.
The reason why your logic is flawed is as follows:

The banking industry tried to create money out of money using financial engineering.There was no tangible product being created.

In case of IT sector, it is not the same case, people who work in IT sector produce tangible results, they write codes, they setup networks, they make processes automated.

Thus unlike banking industry, which made making money out of money as a business, IT industry works in a supporting role to make the existing systems efficient. Tools such as ERP and the current xml driven based Web 2.0. produce tangible return.

Most of the core businesses such as chemicals, construction, FMCG have been highly developed, the IT industry however needs talent in order to develop.

Finally banks / finance industry tried to offer loans to people with bad credit history and showed the future earnings as results. IT industry however roots out inefficienies in the system and produces tangible results.
I believe we have a still long way to go as far as IT is concerned. Due to moor's law, as computing becomes ubiquitous, the need for talent in IT industry will only rise.

Anonymous said...

Take "making money" out of the banks.