Kurt Konrad Posselt: Is there such a thing as a reliable banker? A plea for better qualification

Anyone who, like the author, completed their apprenticeship in banking in August 1967, enjoys being a banker and be­­lieves that the term “honourable merchant” has significant intrinsic value, will not find it difficult to support the call for greater security in the financial markets. Following the catastrophic and above all global impact of the banking and financial crisis since 2008, this call can simply not be disagreed with.

But it is also important to remember that there has been a need for improved control mechanisms for 50 years, and that the global crisis situation did not simply appear out of thin air.
In this context, it is a good idea to take a look back at world history since the Second World War. One striking example is the collapse of various states in Latin America which had run up debts not only in a short space of time, but also in hard dollar currency, and subsequently collapsed as a result of the exorbitantly high prime rate in the United States in the summer of 1982, among other things.

But a look at the reports of auditors at German banks also sheds some light on the matter. Analysing these reports makes clear the extent of the losses made in corporate banking over the last 50 years. The figures for foreign financing transactions are also con­spic­­uous. Since the 1970s, regional state banks have entered into significant credit risks abroad, although this is not their core business, merely in order to achieve growth.

Bank supervision needs to be harmon­ised and tightened. One approach to solving the crisis on the financial markets would certainly be to harmonise and tighten supervisory requirements around the world. But even then the risk remains that financial jugglers will try to bypass these requirements, which would then lead to more requirements, which could be bypassed once again. The danger of a spiral of deliberate by­­passing of regulations cannot be ignored. And besides that, such requirements often also affect banks which have done nothing wrong. At the moment, almost no differentiation is made between banks of different sizes, so that small and medium-sized banks suffer rising staff costs and therefore competitive disadvantage as a result of stricter requirements.

Another approach must therefore be for all states to introduce “Maastricht-style” regulations, so that in future people in every country can be sure that they live in a healthy economic environment.

 

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The reliable banker is at the heart of this. Furthermore, we need better qualified and above all reliable bankers, as well as private customers with more basic knowledge of the financial econ­­omy. Even as recently as the 1980s, private customers with conservatively ordered portfolios received calls from their customer advisers trying to sell them more risky forms of investment, including in other currencies. This always resulted in commission profits for the banks, but did not always benefit the customer. But this procedure was not questioned until a few years ago. Now, the customer receives minutes of the consultancy meeting and is classified according to his knowledge of the field. The hope is that this ensures that the customer is at least able to understand the benefits of what he is being offered. This is not just progress, but also maintains the assets of those people who need their assets for their pensions – an aspect which will become ever more important in the future given demographic developments and the increase in private pensions.

But is the number of people whose con­­sultancy meetings are recorded big enough? Banks have been “tailoring” de­­ductions from derivatives for corporate customers and their requirements for decades. Even if these contractual parties are fully-qualified traders in accord­­ance with the German Commercial Code, it is still worth suggesting that a log should be kept of dealings in derivative products which had not been transacted before – a log which also examines the long-term benefits of the underlying trans­­action. The bank earns money with every service it provides, so the customer has the right to expect benefits.

In this context, it is worth noting that the number of transactions hedged through derivatives is significantly lower in India than in the Western world. This has not had a negative effect on the success of Indian companies in any way.

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Education and training using case stu­­d­ies is helpful. Of course, we could judge bankers in customer business by their characters but this alone cannot really be measured objectively. They must there­­fore be judged on their education, and made accountable where necessary.
Since the 1970s, foreign banks from Western industrialised nations in particular have been holding extensive train­­ing courses for their next generation of managers. As part of this, future bankers are presented with case studies, such as from the credit business, which they have to analyse and process. The course participants then heard a report on how the case developed, so that they could see in black and white whether their strategies would have led to success. The Association of Foreign Banks in Germany has been providing relevant training seminars for many years – and demand is growing all the time. The qualification courses that are now being demanded by supervisory bodies across Europe are therefore already in place.

Why not make successful attendance at training seminars a requirement for those who want to earn large amounts? This would make it much easier to trace responsibility, and not only when things go wrong. It would also be a way to answer the question of bankers’ pay, which is the subject of such critical pub­­lic discussion. In every sector, staff with outstanding qualifications earn more than those with fewer qualifications. The specification of income limits also seems a good idea – and these limits would have to be kept to.

The last five years alone, especially in the Western world, have born plenty of case studies to provide proper education for future generations of bankers and to safeguard against wrong decisions. When managers are trained in this way, it can be expected that they will deal reliably with the responsibility they take on and be capable of account­­ing for their actions.

The customers must take on more per­­sonal responsibility. These case studies should not only be given to the next generation of managers in the banks – students should also be confronted with practical developments using case studies more often, in addition to theo­­retical teaching. A modified form of these case studies could even be discussed with schoolchildren who have shown interest in the financial economy and who, for instance, take part in stock market games both in and out of school.

Given the growing need for private pen­­sions in our society in particular, in­­creasing general knowledge about the financial economy is certainly sensible, if not a necessity. People’s basic under­­standing of possible developments in their own portfolios and assets needs to be expanded in the long term. Blind trust in bankers should be consigned to history. The foundations need to be laid for customers to take on more personal responsibility.

For this to happen, there is a need not only for financial policy but also for cul­­tural and education policy.

Hintergrund_ErgänztBorn in 1949, the author trained as a banker at Bremer Landesbank and studied economics in Hanover and Hamburg. Posselt joined Commerzbank AG in 1974 and was named managing director of Banco di Sicilia in 1989. He has been man­­aging director of the State Bank of India in Frankfurt since October 2000. He is member of the board of the Associa­tion of Foreign Banks in Germany.