October 10, 2016
Sir, I refer to Claire Jones’ and Martin Arnold’s “Bankers signal alarm over Eurozone lenders” October 10.
If were an SME or an entrepreneur, not being able to access the opportunity of the bank credit I need for me to have a chance to fulfill my dreams, I would be furious and desperate if hearing Sergio Ermotti, chief executive of UBS say “Europe is in a huge overcapacity situation, with a combination of private sector and public sector banks and quasi-public sector banks that have been allowed to compete”.
Gary Cohn, president and chief operating officer of Goldman Sachs is also quoted with, in comparison to Europe and elsewhere with that the US banking sector was “in the best shape ever”. Nonsense, the real strength of any banking sector is a 100% function of the strength of the real economy they depend upon; and few would hold that the US and world economy “in the best shape ever”. That type of affirmation can only come from someone who believes the real economy should be serving the banks, and not caring one iota for need of the banks serving the real economy.
And Nigel Vooght, global head of financial services at PwC, the consultancy is quoted with”: “Banks need to wake up and start to react, because they are an integral part of society, but they don’t have a divine right to be here . . . All the banks are trying to switch from an interest rate-based model to a fee-based model.”
I totally disagree. Banks have, thanks to regulators, not been pursuing “an interest rate-based model” but an interest rate-based capital minimization model. If they are to be an integral part of society, switching from interest rates to fees will just not cut it. Banks need to realize that their fundamental role is to allocate credit efficiently as possible to the real economy, and that’s just not possible using different capital requirements based on ex ante perceived credit risks.