Everybody knows that there's something wrong with the banks. Few seem to know what to do about it.
While Iain Duncan Smith has been gradually lifting millions of people out of welfare dependency, the banks have become recipients of massive state handouts.
Despite all the talk about Basel III and Vickers, for me the most remarkable thing about bank reform is how little has in fact changed.
A report by Berenberg bank – Mad, Bad and Dangerous to Know - looks at how the current tried-and-failed banking model has not just let down taxpayers and customers. It's not working for shareholders either.
After a decade of exceptional returns, returns on investments in European banks are likely to be poor. Why? It is not so much the economic cycle, suggests the report, but the way that banks are structured.
Many European banks are simply too big, and trying to do too much, to be run effectively. Beyond US$ 100 billion of assets, big ceases to be beautiful. According to the report, it makes many European banks complex conglomerates that simply aren't well managed. Worse, the interests of the senior management within the banks begin to take precedence ahead of those that actually own the bank.
What to do about it? Berenberg, not for the first time, makes a series of suggestions.
Many large industrial conglomerates failed, or were broken up, in the 1990s. So, too, large corporate banks. We need to see a larger number of smaller, more specialist banks.
Instead of being funded via public equity, more banks need to be funded by non-public equity, says the report. In other words, those that own the banks would no longer be quite so far removed from those running the bank. Berenberg ought to know – they are a partnership, and have been going since 1590.
"A revolutionary text ... right up there with the Communist manifesto" - Dominic Lawson, Sunday Times
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