Banking: The Last Bastion of Democracy

6/24/2019 - Monocle Journal

Growing up, when people started voicing opinions about politics – a take on the Tricameral Parliament, perhaps – my father, whom I knew was in violent disagreement with them, would just sit there quietly. He was of the opinion that good company shouldn’t discuss politics and religion at the dinner table. Traditionally, I’ve agreed; I haven’t taken a political stance or commented on politics, because I do not believe that private enterprise should be engaged in political discussion. I do, however, believe that working to simply earn a salary is not going to make anyone feel self-fulfilled. We have to be here for more than that; for a greater meaning. And so, when we look at the lines blurring between politics and private enterprise, it forces me to take a stance, and look more deeply at the meaning of what I do. Questions are arising about whether or not banks should be extensions of the state; utilities or independent organisations. And the answer needs to go to the heart of why we are here. What is our purpose?

The State of Banking

Since the 2007/2008 Financial Crisis internationally, banks have suffered an enormous loss of independence and power. They’re no longer extremely aggressive institutions, which traded derivatives off their own balance sheets, made enormous macro-economic bets and suffered substantial losses on occasion. They are now massively beholden to their governments and regulators to comply with increased capital rules which, ironically, increase their risk of failure.

Currently, they have great difficulty attracting high-quality capital because their return on equity is much lower than it was before. Banks hold capital to such a high extent that their return on equity cannot possibly exceed single digit numbers. In fact, banks’ ROEs worldwide are at an all-time low at less than 10 percent. They can’t pick those ROEs up because they can’t get leverage, as they have to hold so much capital; more than double the amount they used to hold. In addition, they can’t get the capital in the first place.

Take Deutsche Bank as an example. Deutsche has lost 70 percent of its value in the last year. It is now worth USD 9.5 billion. It was worth USD 40 billion. It’s received about EUR 8 billion in capital in two transfers, which started in 2014, from the Qatari Investment Fund. Now, you have to be really desperate for capital if you’re going to go to the Qatari Investment Fund. In contrast for example, Goldman Sachs took on no less a dignitary than Warren Buffet as an investor in their time of need.

The Qatari Investment Fund has lost most of the value in banks that  it invested in, particularly Deutsche. What seemed like a slam dunk – investing in a German lender that was one of the top 10 banks in the world, at low value – is now a hit and miss proposition. Nobody in their right mind would have predicted that Deutsche Bank would be in the position it is today.

I also wouldn’t have predicted that the Department of Justice would, this year, fine Deutsche Bank for market misconduct, to settle a set of high- profile mortgage-securities probes from nine years ago. The fine is USD 14 billion which, by the way, is more than they are worth – and is for doing something that everybody was doing. Chief Executive of Deutsche Bank, John Cryan, gets on a plane, flies off to the USA, and comes out looking like a hero because he has potentially negotiated it down to USD 5.4 billion dollars. That burnt through almost the entire value of the capital stake that the Qatari Investment Fund holds in Deutsche. And Deutsche is on its knees wondering what do to next.

If one also takes a look at the United States’ Foreign Account Tax Compliance Act (FATCA) and the effect this has had on banking worldwide, it becomes clear that the independence of banking as an industry has been radically compromised over the last decade. This piece of US legislation requires that foreign financial institutions report on the foreign assets held by their US account holders. Switzerland lived for 800 years not giving out bank account information. Then suddenly FATCA kills it. It becomes clear that the US tax authorities have more power than the South African government, the Sudanese government, the Zimbabwean government and, in fact, the entirety of Europe put together. The Americans don’t like tax evasion, so they have created a law that is not code abiding to anywhere else in the world, but is followed like the highest of all laws in all lands. Whilst I support anything that exposes tax evasion, I do have a problem with the fact that the sovereignty of South Africa is being pinched upon by US tax law without negotiation. The reason FATCA is able to exert such power is that its punishment for non-compliance is a restriction on trading with US banks. Russian banks, as an example, are severely restricted from trade with US banks following sanctions issued against them after the Russians invaded Crimea and the Eastern Ukraine. Now, I don’t agree with the invasion, but I don’t see how Gazprombank, or its investors for that matter, are at fault.

Banks are being restricted and held liable for the costs of implementing complex anti-money laundering systems. Banks are no longer able to use client deposits to help with funding of investment banking and trading. They’re prone to enormous fines – research shows more than USD 138 billion dollars worth, just in G8 countries, in the last nine years. Bank CEOs regularly fall upon their swords – the most recent example being John Stumpf from Wells Fargo. Given all of this, the economic argument for banks to be utilities, like a power grid, is strong, especially from an investor’s perspective.


Banking and the State

But – and it’s a big but – to be effectively extensions of the state would yield greater danger to our purpose. In our own country, state organs are at war with each other over legal minutiae that can only embarrass us as a nation. We can’t talk state interference without starting with the Guptas. As one example: various state agencies forced Glencore to sell Optimum Coal, into a kind of state fund, and they then sold it to the Guptas for nothing. This coal mine is supposed to be part of our state assets and we, as tax payers, own it.

In fact, there are many, many very suspicious transactions that can be seen in the Guptas’ bank accounts – accounts that were closed by the banks at which they were held. Pressure was placed on Finance Minister Pravin Gordhan to interfere in this matter. He refused, saying he should not be compelled to take a position against two parties in a matter that has nothing to do with the Minister of Finance. He made use of a very important part of the law in which he is allowed to ask the High Court to support his choice.

Any responsible bank would wish to close those accounts, in any country, as a private institution and a commercial entity under a capitalist system. The banks should be in a position to remove themselves from risky accounts, without being embroiled in the political warfare taking place around them.

The attacks on Gordhan didn’t end there. The National Prosecuting Authority has been after him for two things. Firstly, for having and running a rogue unit within SARS when he was at its head (as an aside, if you know about it, and run it, how can it be rogue? A question for another day perhaps). Investigating suspicious transactions is not a bad thing; it is what banks are required to do. If they don’t do it correctly, they get fined. Secondly, Gordhan was investigated for allowing early retirement of former SARS Official, Ivan Pillay, with a pension of ZAR 1.2 million. A very small amount of money, especially when compared to the likes of Zuma’s accounts, or education funding shortages.

This war continued on. Vlok Symington, the Deputy Director of Law Administration at SARS, was effectively held captive by the Chief of Police and three henchmen, or senior officials, from the Hawks. Their aim? To force him to write an affidavit that would essentially retract a memo he wrote in 2009, in which he stated that Pravin Gordhan was working within the rules of SARS, and its pension fund regulations, when he allowed Pillay to retire early. The issue became even more ridiculous when an email popped up that had been inadvertently sent to Symington, in which the Chief of Police extracted a written opinion from a SARS Lawyer, stating that, ethically, they could not force Symington to write such an affidavit

In a truly telling moment, as Symington debated ownership of the email with Hawks’ Nyameka Xaba and SARS Commissioner Tom Moyane’s bodyguard, he was told, “Please sit down, we are all human”.


On the Banality of Evil

It’s an interesting turn of phrase, considering that the attacks on SARS and Pravin Gordhan himself offer up no rationale or meaning other than simple greed. Not humane, but evil. But for what purpose? person character that had been created by one of the authors in the class. The character committed a violent murder for no apparent reason. What naturally came up in the discussion were the two great murders of western literature. The first being the murder committed by the protagonist in Dostoyevsky’s Crime and Punishment, the second being the murder committed by the protagonist in Albert Camus’s The Outsider. The first murderer was Raskalnikov, who murders the Jewish money lender with the view that the money he would take from her, which would assist him with his studies, would ultimately be of far greater use to society than if it were left with the Jewish money lender. The rest of the novel is spent with him evading the law and going through some kind of sense of guilt, but not necessarily the realisation of what he had actually done.

The second great murder of western literature is the protagonist in Albert Camus’s The Outsider, who has lost his mother, and is walking along a beach when he gets into a minor argument with someone he knows and shoots him. There is no particular guilt that we sense from the first person narrative. There is no particular remorse that is felt when he is finally captured and imprisoned. What is particularly disturbing about the novel is that the reader is left feeling complicit with a character, to whom you have grown very close, who thinks clearly but without any real sense of empathy for other human beings. In the discussion with Prof. JM Coetzee over whether one could in fact have a main protagonist that could commit a violent murder without remorse Prof. JM Coetzee uttered words I will never forget: “Evil can be, and often is, quite banal”.

Now ask yourself why Pravin Gordhan is being attacked so vehemently by Zuma? Why the Guptas are using the organs of South African state craft for assets that have not been earned, but are being grabbed from under our noses? And the purpose is very simple. It’s about money. It is a raid of our country taking place within our very land, in front of us. While the country is burning, while a generation is being lost, while learners are suffering, these folk, these powerful folk, are fighting with each other over billions of dollars of assets that, actually, belong to us.


Remaining Private Entities

There will probably never again be a better example of why banks should not be utilities, and remain private enterprises. If the current dealings – this embarrassment to the democracy of South Africa – were to be executed in a planned, logical form, it would be dangerous.

It reminded me of when I was a student at the University of Cape Town, studying under the tutelage of Prof. JM Coetzee. He had returned from lecturing at Johns Hopkins University in Baltimore and had decided that it would not be inappropriate for Honours students studying English literature to have at least a part of their course in creative writing.

Regularly, we would submit our own writing and it would be critiqued by our colleagues. I remember very clearly discussing, at length, a first And can I tell you who is going to put a stop to it; the banks. You need a bank account to put your money in, and if your money cannot be accounted for, you have a problem. Recall that Al Capone didn’t go to prison for the rest of his life because he murdered people, he went for not paying his taxes. In modern life you need to pay your taxes and hold bank accounts that are transparent.

The minute that banks are not private enterprises, they will not have the right to close bank accounts and say, “No thank you, I don’t need your business”. That is why banks must stay private; this is their purpose.

We must work for more than money; towards a better future for banking because it is the blood supply of the body economic. We, as consultants, should not be peddling regulation for the sake of it. We should be advising banks on the best way to deal with the complexity of opposing forces. We need to fight harder against these state enterprises. We need to live in a capitalist free society and not some pseudo democracy. The banks must stand as the real heroes in this battle against evil, even in its banal form.

The only people that will make a true democracy work are people like you and me, who will not be extensions of the state. The state is already too big and it is already too powerful.


Recent Posts


13th Floor, Greenpark Corner, 3 Lower Road, Morningside, Sandton, South Africa

Phone: +27 11 263 5800
Fax: +27 11 263 5811


301 New Cumberland, 163 Beach Road, Mouille Point, Cape Town, South Africa

Phone: +27 (0) 82 952 1415


4 Lombard Street, London, EC3V 9HD, England

Phone: +44 (0) 2071 902 990




Copyright © 2019 Monocle Solutions. All Right Reserved.