JOURNAL - A SHORT HISTORY OF BANKING

Banking: Past, Present and Future


2019/04/24 - Monocle Journal

In considering some of the stories that make up the history of banking, we hope to provide some insight into the different forces that shape the interconnected worlds of economics, politics and finance today. In understanding how these interconnected worlds have been created and shaped, we may also better understand how the sovereigns, societies, and people who comprise these worlds engage, cooperate, and communicate, and how this in turn shapes the presiding paradigms in which we exist.

Banking

There are certain themes that seem to persist in the world of banking. One such theme is that, throughout the last one hundred and fifty years, there have been waves of regulation in which banks have been progressively coerced into becoming extensions of the state, effectively nullifying their status as true independent, private firms. However, as reiterated in the most disastrous financial crises of the past century, if banks are completely unregulated – left to exist in a true free-market environment in line with the Milton Friedman school of thought – they inevitably need to be bailed out, as witnessed on at least four occasions in the last one hundred and twenty years. And ultimately, as a broad theme, it is this pendulum swing between regulation and the ideals of the free market that has characterised the last century of banking.

The second overarching theme is that, in contrast to other industries – and in contrast to most other areas of society, for that matter – when individuals or organisations break the rules in the context of banking, what tends to happen is that they merely get a slap on the wrist. In very few cases, excluding the 36 bankers that went to jail following the Icelandic financial crisis of 2008, are there substantial criminal charges laid and successfully prosecuted. It is this distinct lack of accountability – in an industry that seems to have few significant consequences for wrongdoing – that disincentivises respectful behaviour toward the rules that would be in the best economic interest of all. And whilst there are a number of cases of individuals being blamed for what is often pervasive behaviour throughout an organisation, in very few instances have there been serious repercussions for the senior management of those firms. 

The third and final theme that is revealed in considering the history of banking is a noticeable swing to the right, in a global socio-political sense. There seems to exist today more nationalism, protectionism and isolationism in the collective consciousness than there has been in the recent past. In this sense, there seems to be a reversion to a more regional world than that of a global one. Phenomena such as Brexit, the election of President Donald Trump, and the rise of right-leaning governments such as in Hungary – as well as near misses in France and Germany, where right wing groups are gaining numbers and an ever-stronger voice – seem to indicate that the world as a whole is transitioning to a more conservative and less tolerant state of being. It may even be argued that this global socio-political shift is a consequence of the economic infractions and hardships directly resulting from the 2007 and 2008 financial crisis. And were it not for the Second World War, which allowed the United States to assert itself as a global economic and political superpower, the same phenomenon may have occurred subsequent to the onset of the Great Depression following the crash of 1929, and as was seen in the 1980s with the strongly-conservative and republican-endorsed era of American nationalism and Reaganomics.

As witnessed throughout the history of modern banking, when banks are left entirely unregulated, they inevitably self-immolate, taking on ever-greater risks, as there are little to no consequences in their failure or in the breaking of rules – either being bailed-out or left largely unpunished in each case. Ultimately, however, this cycle of failure without consequence leads us ever closer to a more dangerous world.

In the next issue of the Monocle Quarterly Journal, we will more closely examine the post-crisis world, in the hopes of providing some illumination on how these global economic and geo-political forces will play out in the future.



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