Three Words and Banks Will Change

Over the last three years, the debate about and life at banks has been
dominated by the need for more rules and better results. Now, at the
start of 2011 it seems we can turn the page and open a new chapter. On
the results front, banks have attained decent stability, with a mix of
profits coming from lending, retail banking, and asset management no
longer based on euphoria, in a context of low interest rates. The
attention to costs and credit restraint has contained potential
losses. On the rules front, the coming into being of Basel 3 has
defined a road map for capitalization requirements.
The new element emerging is strategic positioning around three issues:
territory, people, governance.

On the territorial front, the challenge is to go back to understanding
local needs. For smaller banks, it's always been so. But proximity to
clients has to make sense also in a global economy, in order to
support small firms in the international arena. For larger banks, the
reconquest of the territory is to be based on the promotion of the
quality of products, efficiency, as well as economic compatibility. On
the people front, the challenge is to recover trust and a clear sense
of purpose. And people are customers as well as human resources. For
customers, the simplicity and clarity of retail products, high
customization, sophistication and expertise in the relation with
corporate and private clients are the roads to be followed. As far as
employees are concerned, the challenge is to reward talent. With
regard to good governance, stronger capitalization requires strong
governance and a stronger role for shareholders who have to support
this either with their own funds or by accepting new members to the
club.

If governance is merely about the balance of power within the bank,
then territories and clients fade into the distance. The key issue is
the role of owners and their ability to impart strategic objectives to
banks. As Giorgio Ruffolo said almost thirty years ago, shareholders
of banks have in their hands the extraordinary power of complex
institutions. They thus must support firms and institutions and give
their decisive contribution to the growth of the economy. But such
power must be accompanied by wisdom. In this sense, the reflections of
Cesarini, Monti and Scognamiglio in their 1980s report to the Italian
Treasury which opened to privatizations are still valid: it's not so
important the private or public nature of shareholdership, but what
long-term vision the controlling shareholder has for the use of
available financial resources and if he/she can be trusted to lead a key
institution for the economic system.