Crazy Little Thing Called Banking

Some say that being able to make a career in banking you really really have to like it. Otherwise, you won´t last longer than 5 years at maximum.

I´ve always found banking and banks in general very interesting. They´ve always seemed somewhat mysterious and intriguing. Places where time and space collide. People with suits handling people´s money there and being charge on so many things. That might have been the reason I´ve thought that even the basic bank advisers are like government officials: They have lots of responsibility and are somehow above you in the hierarchy. You don´t want to mess with them.

Now as a bit older and having worked in a bank for several years, I have learnt that people in the banks are just regular people like everyone else, just doing their job. As employers, banks offer a wide range of positions and departments, thus offer you various opportunities to watch and learn about how the money makes the world go around.  Since I´m eager to always develop myself and to learn more, banking offers me probably the viewing point on the economy both in the microlevel and the macrolevel.

As long as people have had gold coins and wealth without any kind of storage for them, the banks have kindly offered their services to hold the wealth in exchange for a small fee. Then the system got on rolling when these bankers figured out the use of bank bills, bonds and the ability to loan the existing deposits. After that the banking business has generated mainly revenues from the loan business and the people making the deposits have been compensated with short-term interest as a thank you to making the bank´s business possible. After that the innovations have kept on coming even though the basic idea is the same.

Banks have been throughout the history been the hubs and storage for information and advice, even though the essence still is basically the sales of financial products and services. According to study, the services and products people dislike the most are the banking products and services. It is easy to dislike paying a service that has been made compulsory for you. Statistics show that for example in the United States, only 7 % of the population does NOT have a bank account. 93 % of the population however does have. The map below shows some statistics on the amount of established bank accounts for over 15-year-olds. Banking seems like a good business in general.

Banks are important for individuals. That’s why currently the banks are discussing their role more on advising and educating people in personal finance. For example digitalization requires the banks to teach new ways of online banking identification for elderly people and the banks want also to teach young people the basics of savings and finance. No matter whether the motives are additional sales or minimizing future non-performing loans of the customer base, I think that banks have increased their “voluntary work” in educating the population at least in the Nordics for the sake of offering their knowledge and expertise sometimes pro bono. Even though banking is about sales, it is also about help and advisory on important issues.

The current financial markets are highly integrated and thus make the transmittance and spreading of financial crisis’s (banking mistakes) very broad and efficient. That´s why banks are among the most regulated industries in the planet and have a high level of responsibility on our financial system in addition to being important to individuals.

That is probably the main problem of banks. The banks know that they are important part of the society and know that the public sector would rescue them in the case of a crisis. Banks might consider themselves “too big to fail”. According to classical economic theory, this introduces the banks a “moral-hazard” to take more risk in their business, if they know that they are rescued in case something goes horribly wrong. In 2008 however, the case of Lehman Brothers showed that this is not always the case.

Banks have established themselves a central position in our society. They are profit maximizing firms like corporates, but they are almost as compulsory part of the society as the government institutions. They are in the between of everything and they hold all the strings. Their purpose is to keep the people in the Ferris-wheel 24/7 and let them enjoy the ride.

That is the true essence of banking and that´s what makes it so interesting.

In addition to the retail banks we can see in every town we have investment banks and central banks. Each “level up” in the banking makes the magic behind the banking business more complex with M&A’s and monetary policies. I´ve had the opportunity to work in a retail bank and in an investment bank and I´ve learnt so much about the economics and finance behind these institutions.

Only the central bank is missing…

Text: SW

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