Banking on Banking on Quicksand


By Rohini Ralby and Dr. Ian Ralby

The phrase “In God we Trust” has long graced US currency.  Our trust, however, has shifted from God to banks, and to the people who work to generate wealth on increasingly creative, risky and fantastical grounds. As recent headlines demonstrate, however, those banks and the people who run them are far from omniscient, infallible or immortal.

C. Hoare & Co. is a private bank in the United Kingdom that has operated under the leadership of the same family since 1672.  It has evolved with the times, but it has maintained certain principles that have kept it alive through countless wars, pandemics, economic crashes and major shifts in both global power and world trade.  By contrast, Silicon Valley Bank was founded in 1982, First Republic Bank was founded in 1985 and Signature Bank was founded in 2001.  They seem to be on the front end of a growing list of banks that  may not survive to even the midway point of 2023.  The latest addition to that list, Credit Suisse – around since 1856 – has shown that even older institutions are not immune to the danger of abandoning values, eroding fiduciary responsibilities and relying excessively on risky instruments. Theoretically, that was the lesson that should already have been learned from the 2008 collapses of such institutions as Lehman Brothers (founded 1850) and Bear Stearns (founded 1923). So why is the banking sector still banking on the same principles that brought down the economy fifteen years ago?

On the 27th of February 2023, less than two weeks before Silicon Valley Bank – the first of the recent failures – collapsed, Victoria Saporta, Executive Director of Prudential Policy at the Bank of England, gave a speech that is posted on the Bank’s website. In it, she effectively argued that a critical role of the Bank’s regulatory function – the Prudential Regulatory Authority – is to facilitate growth and that the regulations established following the 2008 collapse needed to be watered down or dissolved in order to allow for that growth.  A critical premise of this argument is that growth is good. 

Growth, like change, however, is not a uniform phenomenon – it is binary, both good and bad.  While “personal growth” or growth in individual material wealth might be championed, the growth of a cancerous tumor, growth to obesity or growth founded on Alternative Tier 1 Bonds – as Credit Suisse can confirm – are not desirable forms of growth. Is the desire for unbridled growth blinding the financial sector to the point that it will again wreck the economy and revive the “too big to fail” mantra that led to austerity for billions and golden parachutes for the already wealthy individuals most responsible for the collapse?

Just a few years ago, cryptocurrency seemed the hot alternative to the traditional banking sector. The main drivers and champions of that space were trying to do something different, but they used some of the same high risk, high reward principles that plagued the banking sector in 2008 and are creating today’s instability.  With crypto, investors expected their money to go “to the moon,” given the astronomical gains that were being made by some in that space.  And while the boom reached a peak in early 2022, the bust has now decimated the alternative banking sector in a spectacular fashion.

As we confront this latest banking crisis, it seems there is no new thinking in how to ameliorate it.  UBS, the largest Swiss bank, will buy out Credit Suisse, formerly the second largest Swiss bank, making just one bigger bank.  Over and over, we seem to simply try to “solve” a problem by making everything bigger.  With a bigger bank comes bigger risk.  Single points of failure are terrible for any resilience strategy, so how is it that our global economic resilience strategy is to increase the potency of those points of failure?

Positive thinking and hope as a foundational strategy have brought us to this crisis.  The best approach to get us out of it is decentralization.  Decentralization is not about big versus small or global versus local.  Rather it is about prioritizing and being accountable to the people who entrust the bank with their money.  The priority cannot be the advancement of the institution or the profit of the bank itself.  That model, where the focus is centralized on the growth of the bank at the expense or, at best, incidental benefit of the individual customers, is precisely the one that keeps collapsing.  This form of decentralization is effectively the re-humanization of banks and C. Hoare & Co. proves that such a model is not only possible, but truly sustainable. 

Decentralization of this sort also encourages diversity, fosters resiliency, and would help us to transition from an economy based on fantasy to an economy rooted in reality.  In facing the precariousness of the current financial situation, banks have an opening to be more human.  We have to get to a place where the risk of one person’s poor decision-making, or one bank’s destructive mindset, is reduced because their impact is more limited.

If the global economy is unwilling to learn from the likes of Lehman Brothers and Silicon Valley Bank, perhaps there is at least something that can be learned from the staying power of C. Hoare & Co. As intoxicating as immense wealth at the top of the banking “food chain” may be, we should not be so deluded that we keep re-enacting the fate of Icarus, trailing beautiful feathers as we fall back to reality.  Risk management does not mean not taking risks, but it does mean considering what is at stake.  If we do not open our eyes, see the impact on the global economy, and take reality into consideration, we can never actually manage risk.  When banks bank on fantasy, they put real people’s reality on quicksand. We have to be proactive in pursuing a future on firmer ground.  That requires putting our trust back in God, however we conceive of God, reviewing our financial principles and building a structure that holds itself accountable to human beings.