When Is a Bank Not a Bank

By Tim Holland

It seems to me that the headlines generated by the executive musical chairs being played at Citigroup merely bring to the fore the entire issue, and possibly even the raison d’etre, of the so called financial services conglomerate. Citigroup is not really a bank any more but a holding entity for a variety of businesses within the loosely defined financial community.

Citigroup actually runs a series of divergent business under its umbrella (the red one they acquired from Travelers Insurance and refused to give back when they spun them off) which they list as: Global Consumer, Corporate and Investment Banking, and Global Wealth Management. But where’s the bank? It must be in there somewhere. Remember banks? They are the places where you deposited your money: a) for safekeeping, b) to earn interest on your savings, c) to write checks so you can pay your bills, d) to borrow some money when you wanted to make a major purchase. What ever happened to them?

We have in the way of banks, what the U. S. Congress has, in its wisdom, given us, with the help of some self interested major players. It is through Congress’ de-regulation, re-regulation and general lack of understanding of why we separated banks from other types of businesses in the first place, that we see the approach to family finances that the current generation of banks offer. Congress justified permitting the creation of the financial services company by seeming to require certain protections for the customer and then failing to recognize that an army of accountants, lawyers and consultants would be able to find their way around any roadblock. Learning from history and understanding the corporate world is not Congress’ strong point.

The major players in the U. S. Banking world have bought into the idea that banks should be like department stores: one stop shopping. A trip to your local branch should provide a portal to every other type of financial service a family could ever need.

The problem that has evolved is that what someone managed to convince the banking community was logical on paper, may not be practical. The definition of financial services may be too broad and trying to put every business that even remotely looks like a financial service under one umbrella may not be the best approach.

Once upon a time, we had financial institutions that catered to specific aspects of the individual and corporate marketplace. What we used to refer to as “people” banks were Savings and Loan Associations, Credit Unions and Savings Banks. We also had Commercial Banks, International Banks, Correspondent Banks, Merchant Banks, Trust Companies and a whole host of other specialist institutions. Now one bank tries to be all of the above and more. The S and L’s, of course, disappeared after Congress relaxed the rules for them and management greed and stupidity took over. Commercial banks stepped into the breech, salivating all the way, assuming they would just take over the market. They did for a while but, as the mergers continued and nationwide banking became a reality, the market changed when customers realized the brick and mortar of the local branch began to look and feel more like gingerbread and the smiling people inside were being paid commissions to fatten up customers with credit they didn’t need in the expectation of feeding off the high interest rates used to finance purchases they couldn’t afford to make. The result was the opening of the door to the creation of the Community Bank - basically the entity that was envisioned when they changed the rules for S and L’s.

It looks like it’s time for the financial service behemoths to start rethinking what they have become and start evaluating not only what they want to be but also what they, realistically, should be and more importantly - can be. The words “ back to basics” comes to mind, assuming they still know what banking basic are. It might also be helpful if they had more bankers running banks, rather than lawyers and accountants. Remember bankers - they’re the people who earned their stripes by working with and servicing customers, opening accounts, evaluating financial statements and making loans. Hopefully there are still a few of them around.

Note:

This opinion/essay is the property of the author. It is offered for use by individuals who are also free to copy and make it available to other individuals as they wish. Anyone wishing to make use of the material for commercial purposes must seek permission of the author, who can be reached at Impressions@Tim-Holland.com. Such permission will not be unreasonably refused.