CityAM, August 12, Barney Reynolds and Simon Dodds
Banks are often accused of making excessive profits. In fact, for the past several years, western banks have tended to be less profitable than they used to be, trading at lower or barely more than their book value. Improved profitability for some banks, resulting from interest rate hikes, is unlikely to change the situation except temporarily.
One key source of inefficiency is the trend for process-driven management, which has grown since the financial crisis of 2007-8, particularly in response to the swathes of regulation that were introduced after that time.
This has left banks with an unwieldy bureaucracy, reducing the ability for senior managers to exercise judgement and squeezing out vital time for thinking. Ironically, that has given shadow banking – relatively unregulated – a competitive advantage and made the financial system less safe.
The current fashion is nevertheless to introduce more processes, on the theory that the greater their use, the greater the cost savings and the greater the benefit.
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