A bank’s loans are its assets, while its customers’ deposits represent liabilities.
Viewed that way, behaviour like we saw from Bank of Scotland looks like good sense. Maximising assets and minimising liabilities sounds like good accounting – but that can only take you so far.
Hubris makes lots of the reputation of HBoS for solidity and permanence. Mr Perman appears to admire the “literal dustiness” of both HBoS and its employees. He tells the history of the bank like a bedtime story about mythological elves.
But that permanently panelled Victorian fustiness has its own type of risk – and its own unfairness. Mr Perman does not seem to worry about the cosy deals given exclusively to the bank’s staff, or the requirement for employees to move their accounts when they started work.
He does not mention many of the bank’s contemporaries either. For example, the infamous Scottish banker John Law, who created the Mississippi Bubble. Forget Ponzi or the Lehman brothers; by 1720 John Law’s bank had created the biggest economic bubble ever. Before collapsing, it printed enough paper money to double the amount of currency in France, and cause immeasurable poverty. The good old days of banking were not without their flaws.
John Law’s approach would sound familiar to the person responsible for the modern downfall of the HBoS. Andy Hornby ran the group in the same way he ran George at Asda – always pushing for more sales.
When Mr Hornby’s investments/bets went pear-shaped, the time-honoured phrase ‘money in the bank’ fell out of the dictionary overnight.
Why did the regulators not stop HBoS? Mr Perman discusses this, but, like everyone else, has no real answer. His personal view is that regulators slipped up, but his analysis seems to show how more regulation never stopped banks failing.
If one lesson can be distilled from the downfall – it is not to forget the depositors.
Mr Perman makes a lot of how we need a “sustainable ecosystem of lenders”. His answer lies in more regulation, whereas what we really need is more competition. The growth we’re seeing in short-term secured loans illustrates some of that demand for fresh forms of finance.
Lenders who lose sight of their customers – who fund everything they do – will not be competitive in the 21st century. Hubris is cutting about the massive HBoS-Lloyds deal the government pushed through in 2009, but it does not offer much criticism on the monopoly that the Bank of Scotland was first founded on.
