Jürgen Fitschen

In Defense of Banks and Bankers

Specialist Paul Cosentino, center, works with traders at his post on the floor of the New York Stock Exchange, Monday, Aug. 24, 2015. U.S. stock markets plunged in early trading Monday following a big drop in Chinese stocks. (AP Photo/Richard Drew)
Traders at the New York Stock Exchange.
  • Why it matters

    Why it matters

    Guest columnist Jürgen Fitschen, the co-leader of Germany’s largest bank, urges the industry to make radical changes in its culture.

  • Facts


    • John Cryan replaced Anshu Jain as Deutsche Bank co-CEO in July and will become the bank’s sole chief executive after guest columnist Jürgen Fitschen steps down in May.
    • Deutsche Bank has been rocked by legal troubles in recent years that have undermined the bank’s reputation.
    • Mr. Fitschen and four former bank executives were indicted in September 2014 for allegedly colluding in a civil lawsuit brought by former media mogul Leo Kirch.
  • Audio


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I vividly recall September 2008 when the global financial crisis was cascading. Tensions grew almost daily, and corporate clients were increasingly concerned about the receipts of foreign payments and their banks’ equity needs.

When the banks stopped lending to each another, drastic consequences threatened, for customers as well. International payment transactions could have ground to a halt. This potentially would have caused entire economies to no longer have access to essential financial services. Luckily, that’s not what happened.

Through the spirited intervention of government and financial institutions, a situation that threatened to spin out of control stabilized.

For me, it was a defining experience. On the one hand, we were forced to learn that our financial system was more fragile than we had thought, and our cushion of equity was too small. On the other hand, it became clear that the considerable use and value of the services we took for granted were no longer available in their familiar form.

UBS and Deutsche Bank A Comparison-01 (5)

But how do banks create genuine added value in a free market economy that is considered a guarantor of our stability and freedom? What use do banks have? What is their role?

  • Simply put, they extend loans to companies, private customers and governments. Banks finance this through deposits entrusted to institutions and loans taken out by customers, and banks assess securities. In addition, financial institutions provide liquidity to capital markets in the form of outside capital and equity.
  • Banks serve companies and investors as partners in risk protection.
  • And banks reliably conclude a variety of financial transactions.

When banks come under heavy criticism, it is because there are, as in every company, people who do their job negligently or even poorly.

The big difference is that at banks, bad decisions and manipulations can have drastic consequences. Those who make wrong decisions about loan extensions, or wrongly assess risk, or fail to communicate such risk sufficiently to customers, or manipulate transactions, can cause immense damage.

A bank has to react quickly to mistakes, both transparently and effectively, and the bank must communicate from management on down to the branch offices a culture of transparency and openness, to prevent these types of situations as much as possible.

It’s indisputable that in the past wrong incentives existed, mistakes were made, and in extreme cases, even the rights of individuals were consciously violated. Without reservation, that must be accounted for and dealt with.

Only those whose moral compasses function properly can create an economic added-value over the long term. Good values and conduct also have a tangible economic benefit, while dishonest dealings, similar to lies, will always be found out.

However, the baby shouldn’t be thrown out with the bathwater in the public debate. I observed this with great concern.

At the end of 2008, for example, there were increased calls for nationalization of the banking sector in the aftermath of the Lehman bankruptcy. I would suggest to those demanding such an action instead to take a closer look at the history of socialist planned economies.

In addition, such critics overlook the enormous benefits that a properly functioning banking sector can bring about for all citizens in a free market economy.

Mind you, banks don’t create these benefits out of the goodness of their hearts. They don’t, but like every responsible private enterprise, all good banks try to serve their customers as best as possible while at the same time analyzing the economic environment in which the customer operates, as an investor or saver, or as a creditor or debtor.

A responsible bank dealing in its customers’ best interests won’t extend credit for outdated or environmentally harmful technology. And such a bank will encourage customers to act honestly regarding taxes. If the bank doesn’t do so, the customer will pay a high price, and the bank will too.

Also, a bank might enter into a new field such as ethical investments. And not because the goal of the investment is ethical per se, but rather because it’s always profitable when a bank’s customers demand such products.

For countries, a bank creates enormous benefits for economies through risk management, by helping countries safeguard against major risks. From interest and currency risk to loan default and all the way to liquidity risks — to name just a few of the most important functions.

Banks, like all market-based companies, have a great interest in reacting quickly and efficiently to the wishes of their customers and developments on the market. For that reason alone, much will change in the banking sector in the next couple of years that will further increase the banks’ usefulness and value for their customers, namely citizens and taxpayers.

That’s why it can be assumed banks will adapt to digitalization particularly quickly and effectively.

Many bank critics overlook the social value of such services, or underestimate them, while at the same time overlooking the proven value of banks in our economy. It is banking services that create the prerequisites for investment and create prosperity by enabling companies to take risks, and thus enabling prosperity to grow.

Only thus can prosperity spread to the benefit of all. The global banks that at times are viewed with skepticism play a special role in this by promoting international trade on a sustainable basis.

The financial crisis of 2008 has made us aware, at times painfully, of the economic benefits and social value of banks. The institutions have learned from those times. Still, banks will continue to face cultural changes from within to rediscover the golden mean.

If banks succeed in changing their culture, they will remain a central part of any society that strives for freedom, market economy and stability.

That’s why it isn’t a contradiction that banks have a service function and at the same time strive to be profitable, because whoever succeeds as a financial service provider in helping customers invest in a manner advantageous for both sides is acting in the interest of a nation — and its citizens.

At the same time, success at any price is never to be chased. A bank isn’t automatically successful when its financial indicators are right. It’s for a good reason that customers, as well as governments, don’t just ask how much profit banks are generating but also how they are doing it.

That’s why transparency, sustainability and honesty have an even greater value than perhaps in the past. A business that changes more than most sectors do must create stability through trust. Trust is the basis of every business relationship and reduces complexity.

It’s the same with freedom. It comes on foot and flees on horseback.

Its value is often appreciated only when one has lost the trust of others.

Always included among the fundamentals of trust are binding rules.

But nobody is served if the restrictive regulation pendulum swings too far. When banks are hindered by regulations from entering into a calculated risks, then the real economy is threatened and the culture of risk and growth.

If banks are hindered from doing business, risks will be shifted to institutions such as lightly regulated shadow banks. That’s why regulation should never lose sight of the golden mean as well.

I admit this admonition can seem unreasonable after the experiences of the 1990s and 2000s, as if a speedster flooring the car’s accelerator is criticizing the motor. But there are also those drivers who take it to heart when they drive too fast and are caught.

So, what then are the benefits of banks? As a risk-conscious service provider, banks contribute to the safeguarding of a free market economy and, with it, a free society. And that’s what makes a functioning banking system valuable, useful and, yes, even an indispensable part of society.


To contact the author: gastautor@handelsblatt.com

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