Monday, September 14, 2009

Small banks, manageable banks

I wrote earlier that we needed banks that idiots could manage and this meant that banks should not become too large or complex. The Economist carries a profile of a successful East European bank wherein the banker talks about the virtues of being small. The bank is Erste Bank,Austria's second biggest. Its CEO says banks should stay small because they can't attract the best talent, only mediocre people.

People who want to make a lot of money fast go to work in investment banks, but people who work in commercial banks are pretty average people," says Mr Treichl in an office so understated that it almost seems calculatedly so...."We should not think we can invent something brilliant. If we could we would be working somewhere else,"he says of the exotic credit derivatives that spread risk, like a contagion, through the financial system.

The banker also points to the difficulties in managing large banks, sprawled across several countries.

If you run something like Citi how the hell do you know what's going on in Poland if you only go there every three years?" he asks. "This is very much a people business. I need to touch and smell and feel what's going on."

Very true. But I would question the presumption that because investment banks attract brighter people, they can afford greater risks. If this were true, then Lehman, Bear and others would not have gone under. The problem is two fold. First, firms that are beyond the capability of even the brightest to manage because of their sheer size. Then, the problems of excess leverage, which create incentives to take excess risk that even the brightest are not immune to. Greed is not something that bright people are free from.


Sacha Singh said...

I read it today:"A banking system filled with ignorant participants with low confidence is safer than a group of highly confident mediocre participants. Ignorance and fear, keeps many from acting boldly.”

JS said...

There is certainly something to the idea of being 'too big to govern'. It isn't clear how anyone (however brilliant) could understand the risks that are being taken in a trillion dollar portfolio spread across 50 countries. At that point, the CEO is largely symbolic and can't conveivably be engaged in real line decision making.

The flip side question is - is there true economic / social value created by large banks? Are there economies of gigantic scale that are somehow passed on to the customer? Do these giant multi-national banks in some way grease the economic machinery and catalyze increased productivity across geographies? In short - do giant banks create value that moderately sized banks can't?

I have not seen any research on this though. Maybe you have.

SARATH said...

pls look if this of any use
for you.i'm not good in this.

Mar 26, 2009
Moscow: Russia's leading computer security labs have warned of a new software virus which infects Automatic Teller Machines (ATM) to steal money from bank accounts of their users.

Two leading anti-virus software producers 'Doctor Web' and 'Kaspersky Lab' claimed to have discovered a new virus, in the networks of several bank ATMs, which is able to collect information from bank cards.

“This is a malicious programme intended to infect and survive in ATMs. It is possible that new software will appear, aimed at illegitimately using banking information and removing funds,” an official of the Kaspersky Lab was quoted as saying by RIA Novosti news agency.

He said the virus is a Trojan which is able to infect the popular American Diebold brand of ATMs, used in Russia and Ukraine. Judging by the programming code used, there is a high probability that the programmer comes from one of the former Soviet republics, he added.

The computer security experts say the number of infected ATMs is minimal but individual bank cardholders will not be able to detect whether an ATM is infected or not.

However, banks can run a security software to find out if their machines are at risk.

Tuesday, Mar 10, 2009

SBI ties up with Diebold for ATM expansion

Our Bureau

Mumbai, March 9 State Bank of India has tied up with Diebold for the largest ATM expansion in the country, a press release from Diebold India said. After the expansion, SBI’s total ATM network will touch 12,000.

As part of the contract, Diebold will provide SBI with its model D450 ATM.

The contract includes ATM site preparation and managed services. Currently, Diebold provides managed services solutions for more than 3,500 of SBI’s ATMs across India. It also offers remote monitoring of the ATM network, the release said.