A Blueprint for Better Banking: Svenska Handelsbanken and a proven model for more stable and profitable banking
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'A Blueprint for Better Banking' takes a fresh look at the financial crisis. It sets out to answer specifically what the mistakes were that banks made and how this could have been avoided. What is unique about this book is a detailed description of a large bank that operates very differently from its peers and that has, as a result, steered clear of the areas that have brought many other banks into trouble. This provides a number of insights into how a more resilient, post-credit crunch banking system should look.
The first section begins with an overview of existing explanations of the crisis and why they remain partly unsatisfactory. It then sets out an alternative framework based around seven behavioural patterns of imprudent banking. These 'Seven Deadly Sins' have caused most banking crises, including the current one, and while they come in different shapes and forms they remain essentially the same. This book examines why they remain extremely tempting to bankers, often with the enthusiastic support of their shareholders and no meaningful objection by regulators.
The second and main part of the book is a new and extensive description of the management practices at Svenska Handelsbanken, one of the top 25 banks in Europe. It not only survived the Swedish banking crisis in the 1990s without asking for support, but it has also remained stable during the latest crisis. Handelsbanken did not have to raise capital or ask for government support and its shares have been the best performing European bank stock by a wide margin.
The bank has traditionally been run by management practices that are diametrically opposed to so-called 'best practice' in the industry. The book investigates how Handelsbanken operates without bonuses and examines their unique organisation, strategy discussion, risk management and capital markets communication. In effect, the book describes how Handelsbanken ensures that it does not fall for any of the Seven Deadly Sins. Niels Kroner has conducted over fifty interviews with Handelsbanken executives and competitors, and also draws on his inside experience of many other institutions to bring out the important differences between the 'Handelsbanken way' and common practices at other banks.
The final part summarises what other banks and financial institutions can learn from Handelsbanken and how its model may offer a solution that other potential regulatory changes may not.
now). When funding on the open market dries up, these off-balance sheet vehicles fall back on the official banking system’s liquidity back-up lines. Official banks thereby de facto assume problem assets of the shadow banking system on their own balance sheet. Often the assets of the official and the shadow banking system are similar. That implies banks assume problem assets from the shadow banking system at the worst possible time, since a deterioration of their own assets has already weakened
he whispered to the holy man, “Your brother has just been made Bishop of Alexandria.” A scowl of malignant jealousy at once clouded the serene face of the hermit. “That,” said the devil to his imps, “is the sort of thing which I should recommend”.’ (quoted by Arthur Conan Doyle in his autobiography Memories and Adventures, p. 66). 27 Speech on March 17th, 2009. 51 A Blueprint for Better Banking speculative activity is reported separately so investors can differentiate core operations from
be taken, the banks’ boards could not make informed decisions about cases they were not familiar with. The credit risk officer estimated that only 3-4% of Handelsbanken’s loan book are large and urgent loans that had to be approved by himself and the CEO, and even they were proposed by their local branch. In 2001, out of 400,000 credit decisions only 800 went to the board in Stockholm, of which only 40-50 were discussed by the full board (as opposed to the board’s 75 A Blueprint for Better
entrepreneur himself, selecting the right location for his new branch, recruiting the people he wanted and taking all the other decisions that someone starting a small company would take. But there was also a sense in day-to-day business that the 93 A Blueprint for Better Banking organisation acted reasonably and that the culture was supporting and not hindering branch activities. This applied particularly to lending decisions, where the bank was seen as conservative but fact based and
tendency for people to stay in their roles for much longer than in other banks, and they also certainly stay longer with their employer. Having people with considerable experience in their job is desirable where staff have broad responsibilities. Having bankers who were essentially in the same job in the last banking crisis or the last recession can be helpful. It is similarly useful for a corporate culture that values constant incremental improvements – people know what would constitute an