Are Banks “Utility Companies?”
The collapse of Silicon Valley Bank
last week raises significant questions about the operational intent of the
banking industry (and other financial services companies), most notably, are
banks public utilities or are they retail stores incentivized only by profit
and volume….you know, kind of like restaurants?
By becoming the punch line of a very
distressing news event, financial services has again become the lightning rod
for regulators, agencies and political officials to decide whether these
megaliths operate in the public interest or for their own stakeholders. Let us not forget that the public trust is at
stake in this decision.
In many ways this recurring story
erodes the faith and confidence consumers feel about finance and its
institutions. Who is allied with the
community and its people? Should banks be regulated like electric power
companies, or simply be left to fend like retail stores who’s motive is categorically
staying in business and generating a profit?
Moreso, the financial services
industry peddles hype and falsehoods in their advertising, designed to bait
your cash and build a sense of trust. Retirees
walking on the beach, vacationing in the mountains with their in-laws, or
travelling to Europe might make for great television but it’s a hell of way to separate
people from their money.
Bank’s addiction to profits and
turnover made them very rich and influential in their ecosystem. Unfortunately, they forgot their mission.
The events of last week expose finance
as being like any other business in town…a means for profit. Now, we are not arguing that the dominos are
in motion for more of the same or a repeat of the financial crisis in
2008. The world is in a different place
and the deed is not as nefarious. However,
we do argue that in this industry in particular profit at the expense of doing
right, or proper stewardship, is just another example of greed for greed’s sake. The sacrifices are unreasonably borne by the
very persons who expect responsible leadership from their neighborhood
providers. The days of getting a
toaster, a smile, and a “thank you” from your bank are long in the rear-view
mirror.
Surely these institutions are aware
of the solemn pledge they make to their customers, and that irresponsible profiteering
off of that trust is a non-starter.
Concocting leveraged borrowing schemes is what drove the bus into a
ditch over a decade ago. In this
instance today, the public is “paying” dearly, both remuneratively and
psychically. Write offs, buyouts, and
bailouts might be tools of the financial services industry, but it is not the
same for the “average” consumer, is it?
As we grapple with the fallout from the failure to anticipate how history
repeats, the public’s confidence once again takes a hit from those who pledged
to protect us. The Federal Reserve, the
regulatory agencies, the government owes us the right to feel as if banks and
brokerages aren’t trying to scam, or mismanage, us out of our cash and
future.
More than just a 9 to 5
job
The crux of our argument right now is
that the business community seems to be deploying more and more of these
derivative tactics, especially in an era of low cost borrowing. Curious, however, that the recent rise in
interest rates and the unavailability of money is what sent a cascade of
concern through the Silicon Valley Bank and elsewhere. The very predicate to an avalanche of worry
and negativity is that these companies don’t think of themselves as “Utilities”
in the public domain but rather as profit vultures sitting in the very
community they are there to service.
It’s simple mathematics, really.
When cycles of mistrust are propagated against the public the backlash
is an acceleration of downward price pressure upon the whole population. Remove one pebble from the ant hill and watch
what happens……
Going forward, financial firms can
either redeem themselves by remembering their charter principles or abandon
them. It’s not difficult….they just have
to pick to whom they are beholden. When
shoddy governance and oversight is rewarded it becomes too easy to take the
easy way out.
