What the heck is a “Bank” these days?

By Chris Gillock

I was on the road last week and fell behind in my reading.  Since I am back in my study, I now have a bit of time to wade through some of the interesting articles and stories I missed while hanging with the auto finance crowd in Plano TX.

Dennis K. Berman wrote a piece in the May 31 edition of the Wall Street Journal called  “The Existential Crisis That’s Stalking Banks.”  He opens the article with the following preamble:

“The question is so simple that it seems silly:  What is a bank?

Of course, you know the answer.  A bank pools savings then allocates that capital.  Simple, right?  But that’s just the start.

In 2016, a big bank also doubles as an enterprise software company and a mobile apps developer.  It is a customer-service organization to big companies and individuals alike.  It is a tool of government-mandated social policy.  A shareholder-return engine. An international intermediary. A seller and trader of securities. A policeman of criminals. A policeman of itself.  And, of late, a public vessel, dirtied by political feeling about everything from inequality to race to Congress to the U.S. Constitution itself.”

That is an intimidating list of multiple roles.  Banks and banking occupies a very strange position in the culture and the economy.  I think Mr. Berman frames the situation quite well.  To lead and manage an enterprise that has so many different purposes (many in conflict) takes a level of intelligence, wisdom and diplomacy that most people don’t possess. No wonder the banking system is subject to periodic sputters and malfunctions ….

And here is how Mr. Berman closes his article:

“For now, the banking industry remains traumatized by the crisis of nearly a decade ago. It is this experience of loss that perhaps impedes inevitable change.

There is a great creative surge coming, but it won’t truly happen until those who lived the crisis are gone. Their old way of life—of pay, influence, and breadth—isn’t coming back. There’s no use in trying to resurrect it. They must die so the banks might live.”

This viewpoint is exciting to some, terrifying to others.  Which side are you on?