The main problem in banking is thought to be risk management, whereas in fact it’s all about ethics and principles. In Turkey, we tend to focus on the side effects of the problem rather than the source of it, therefore we fail to find the right solution to deal with the problem.
A “successful banker” refers, in a global sense, nothing more than to a driver who overtakes incorrectly and dangerously until s/he crashes. That’s why we call those who display good moral behaviour and prudence “good bankers”. Banking is certainly not financial engineering either. I have explained this fact in detail in “The Evolution of Financial Intermediation”, which I co-authored with two esteemed experts after the 2001 financial crisis. The book offers several examples of how Eastern European Banking changed over time after the dissolution of the Socialist Bloc, with an afterword containing the new “once bitten, twice shy” banking regulations enacted following the 2001 Crisis.
Overstatement and understatement have no place in banking. That’s why I have always criticised banks that boast about their high capital adequacy ratio for not giving out enough loans despite their strong position to deal with unexpected losses, and warned those with very low ratios for not being prudent enough. Before things changed, bank managers were chosen from among experienced and mature people and they were not replaced too often. However, when banks began to embrace digital transformation at a rapid rate, face-to-face interaction with customers also began to decrease. Instead algorithms stepped in, profit and misconduct increased simultaneously. Insurance, leasing, factoring, financing… Both the number of players and the number of instruments grew bigger and bigger. Risk management became more important than acting ethically and prudently. Reasonable people with good judgment believed in what the analysis reports said and did it as instructed by computers, without a second thought. But as Stephen Hawking said: “No matter how powerful a computer you have, if you put lousy data in you will get lousy results.”
We knew how audacious Americans could be, but before long, we also learnt that Europeans could be as willing as Americans in terms of taking bold risks. One by one, banks thought to be “indestructible” started to collapse in Spain and Portugal, while Switzerland, Germany and France were shocked by a series of bank insolvencies. The United States was quite transparent enough to criticize the system through Hollywood movies, Europe, on the other hand, regarded the issue as “taboo”, apart from a couple of short documentaries, not daring to speak ill of their banking system.
Today, apparently, Americans are still bold, and Europeans are still fragile. The US says “let it collapse”, protecting its citizens, while the EU does everything it can not to let it, protecting its institutions. Let’s see what will happen next.