In a previous part of my career, I worked as an industrial economist for one of the clearing banks. At one time, I was an expert on the food and drink industries and later, I was responsible for the motors and transport industries – across the world. In those days, I supported the corporate bankers who were, themselves, experts on the banking needs of particular industries. They had close relationships with the ‘primes’ and other companies across each sector. In turn, this was supported by the regional branch network where the managers knew local companies well. This was a successful and profitable model based on ‘relationship banking’.
After ‘Big Bang’ in 1987 and the gradual merger of investment and corporate banking, the world of UK banking changed. Initially, the ‘deal-based’ banking of the investment bank was often unprofitable. Tying it in with the very profitable corporate bank made investment banking viable. The irony was that the deal culture of (American) investment bankers steadily took over from the relationship culture of (UK) banking and, thereby, destroyed an important conduit of credit and growth for UK businesses.
The ‘credit crunch’ has shown us the result of this folly. Contrast it with the federal, integrated ‘mittelstand’ approach to banking still prevalent in Germany. With the state effectively owning RBS and Lloyds, the opportunity to restore a corporate banking structure based on local relationships is clear. Come on Osborne, Cable and Balls, get together to create regional corporate banks that establish a relationship between local wealth/investors and local exporting/growing businesses and locally expert bankers motivated by earning returns on successful real local investment.
A SW bank for a SW economy would start to get us out of this mess.