The Economist Intelligence Unit’s contributions
We will bring today's banking issues to the fore highlighting what makes for a Good Bank. This will involve curated expert essays and independent Economist Intelligence Unit research and commisioned articles. Three key pillars we have identified to undergird the Good Bank and form the backbone to the live discussion are: the effective bank, the trustworthy bank and the innovative bank.
Article one: The role of banking in society
A strong banking sector is a crucial part of any vibrant, successful society. By extending credit to borrowers and providing savings and investment facilities for depositors, banks support growing businesses, fund property and other purchases, and help individuals to save money and fund a comfortable retirement. Banks also make a valuable contribution to society by creating jobs, paying taxes and generating returns for shareholders...
Article two: The innovative bank
The essence of banking has changed little since Dutch lenders invented fractional reserve lending over 400 years ago: Take deposits from those with funds but no opportunities. Lend to those with opportunities but insufficient funds. Keep it up until something goes wrong: a borrower defaults, a clerk absconds, a disaster annihilates the collateral, or a mob of depositors storms the lender...
Article three: The effective bank
Five years after the financial crisis, most banks are now on a much more stable footing. Banks, small and large, across the developed world have endeavoured to repair battered balance sheets, strengthen their capital cushions and begun to address the cultural and risk management shortcomings that helped to ignite the financial crisis.
And, with the regulatory picture now becoming clearer, companies are more able to plan for the future and enact the strategic and operational changes that they will need to compete effectively in the post-crisis world...
Article four: The trustworthy Bank
Trust in the banking system is a crucial ingredient in any strong economy. To ensure that capital flows efficiently to where it is needed most, both savers and borrowers need confidence in banks as the intermediary for those funds.
When this trust fails, as it clearly has over the past five years, capital can no longer flow freely. Depositors are reluctant to provide funding, banks are unwilling to lend to each other and borrowers worry that funding will be too costly or not available across the entire cycle.
Article five: A “good bank” in a technology-driven society
Traditionally, banks have acted as intermediaries between borrowers and lenders and thus hold a unique position in an economic system. The health of an economy is closely related to the soundness of its banking system. In the event that the transformation process from lending to borrowing is limited, e.g. through forced de-leveraging, the economy will falter.
In the aftermath of the financial crisis, de-leveraging was driven by dislocated lending markets. Underpinned by technological innovation, this opened market opportunities for new players and new business models that challenged the banks’ traditional role as intermediaries between borrowers and lenders. The best know example has been crowd funding, the funding of a business by selling small amounts of equity to many investors leveraging social media.
Article six: Good Banks get innovation right
To be effective, to be trustworthy and certainly to be good - in any sense of the word - banks need to make it an
important part their mission to innovate, and to get innovation right, in order to make a positive difference for their
business, their customers, and society as a whole.
How does innovation make a bank a good bank? The answer can often vary from bank to bank, and region to region.
In the mature markets of the global north, in particular, risk and compliance and personal financial management are
receiving significant attention. In developing markets, the challenge of bringing people into the banking system for
the first time remains pressing, along with finding ways to keep businesses and economies functional in difficult times.
And, across the world, mobile technologies and social networks are changing the way customers and banks interact,
and the amount of data customers generate and banks need to monitor.