July 09, 2014

Old banking: “What do you intend to do with the money?” New banking: “How do I minimize the capital the bank needs to hold?

Sir, Camilla Hall quotes a bank officer in that “loan growth [in the US] doesn't seem to be driven by the underpinning of an economic recovery” and then she reports that “much of the corporate lending is going to fund payouts to shareholders, finance acquisitions and fuel the domestic energy boom”, “US banks cautious over growing levels of lending” July 9.

Ask any old retired banker what was his first question to a prospective borrower and you would most probably hear him say: “What do you intend to do with the money if I lend it to you?”, and the banker, as Camilla Hall writes, would not have liked to hear “To pay a dividend or buy back some shares”.

What is the first question a banker nowadays makes? Most probably “How can I structure this loan so that the bank needs to hold the least capital against it?”

And I ask you FT… what do you believe leads to healthier banks and a sturdier economy, the old or the new banking?