While sitting in my office I come across all sorts of problems with the banking industry.  I’ve stated one of my goals is to play a part in making banks and financial services less like the “Big Oil” corporate perception and more like the small town image they used to have.  We all walk around feeling like our bank is steeling from us via secret fees and are daunted by the shear size of these institutions now.  I hope to play a part in turning banks around.  Not by lying to you, but telling the truth so you can demand better from the people that hold your money.  While some of this applies to mega-corps as a whole, others are specific to banks.  With that in mind I came up with the 7 things holding banks back.

The Suits
This old world view of the power player in suits is so tiring.  I used to work for a small company where the best dressed wore nice shirts and jeans, and the little guys (me) wore t-shirts and flip flops.  Offices had no doors and our building looked nice inside.  Bright colors and big windows kept everyone happy.  Now I work in a sea of beige and gray.  Business casual is the norm for me, but there are plenty of folks around me that must wear suits.  Personally, I don’t do business with people in suits because I think they are trying to portray an aura of sophistication and importance that has not been earned.  That’s pathetic.  This hinders innovation and only serves to separate the ones that run the company from the little folks.  If we all feel like we’re on the same playing field maybe we won’t be so scarred to go to our corporate overlords and explain to them sub-prime mortgages aren’t the risk free investments they think they are.  Too late for that one.  Moving on…

Efficiency Standards
In short, there are none at banks.  GE runs a tight ship.  They are big believers in Six Sigma, an efficiency strategy many businesses are fond of.  Banks don’t see to care about efficiency.  Let me give you an example.  I’m working on a project of expansion into a new region of the country for our bank.  We have a team of executives, and their sales teams already in these locations.  When it comes to reporting sales, they have 4 systems to use, and there are completely separate teams to process the sales and another 4 to compile reports.  Essentially they all do the same job, for slightly different groups of people.  Because everyone has different bosses, no one knows what the other teams are doing.  At my pay rate, we’re wasting about $8 million a year in talent.  I’m on the low end of the corporate tree.  This isn’t restricted to my bank, as we’ve reached out to other banks (and banks we’ve bought) and found the same practices.  Executives are content with this practice, you shareholders shouldn’t be.

Divestiture
Anti trust laws keep banks from holding certain amounts of money in a given region.  It keeps one bank from becoming too dominant.  It also keeps any one bank from ever achieving real growth.  At this point in time the only way to expand one’s footprint is to buy smaller local banks in regions of the country no yet controlled.  This has kept the major banks from growing, forcing them to look at new financial products (like sub prime mortgages) for new profit.  Look at your local phone and cable provider, those are government granted monopolies.  Comcast and Time Warner control most of the country’s cable access, and the government lets them go unchallenged.  Its not fair, the banks should be allowed to dominate a region if they’re a good bank.  Instead they must sometimes TURN DOWN new customers.

Loyalty
Or lack thereof.  I’ve been with my bank for almost a year now and feel no loyalty towards staying with them.  Worse is the fact that no one cares.  Where I live its almost expected of you to leave your company a few times.  Every time we hire a new executive they’re introduced via resume listing their experience.  It goes something like: 5 years at Citi, 8 years at Bank of America, 4 years a WaMu, 3 years and Goldman Sachs, 5 years at Citi (again).  Do you think this guy is going to stick around for very long?  No, and no one seems to care.  The cost to hire and train these folks is immense, but the suits just don’t see it.   Previously the reward for 5 years of service was a certificate, now even that’s been cut to save paper.

The “Vice President”
Ever met a vice president of a bank?  Sure you have.  No fewer than a forth of all bank employees are vice presidents.  I can be an assistant vice president in as little as 3 years of service, and I would be insulted were I to go 5 years without receiving this honor.  Here’s a translation of what they all mean: Assistant Vice President: Nothing, probably does not even manage a team; Vice President: A few years of loyal service, given to keep them around, means nothing still; Sr. Vice President: What I would call ‘middle management’, probably has some employees and makes low 6 figures; Executive Vice President: Now you’re talking, these people might actually be important, some would report to CEO; Sr. Executive Vice President: Owns a few houses, just waiting for that CEO job.  Only if you see “executive” in the name should you think the person is important.  The rest are just titles meant to keep people feeling important, like suits.  See above.

No Vision
You remember those suits from above?  They can’t look more than 2 years into the future.  None of the large banks have seen the light in online banking and its future.  With peer to peer lending taking off, these banks would do themselves a service to get in on the game.  Instead of making money on the spread, they take a cut in fees for each transaction.  I’ve spoken before about banks’ addiction to fees this should be a no brainer.  Despite being pulled kicking and screaming into online banking, the banks have managed to make this process rather painless and smooth.  But please tell me, Chase, why its free to mail in my car payment but costs $10 to pay online!  Make it the other way around, lay off 100 folks in processing, and increase shareholder value.  Someday my generation will be running whats left of these institutions and you will see the industry change.  But for now, the bald heads and suits just don’t care.

Diversity
The joke of the last few decades is diversity.  This is the most obvious type of discrimination.  I’m a white guy, but may get turned down by a lesser qualified individual because of their race or gender is more “unique”.  A month ago an internal news letter spoke about our commitment to diversity and then just the next week had a profile section that was supposed to be about interns.  Instead it was about an African immigrant that we hired.  This is certainly not limited to banking, but having executives whose only job is to “blog” about two minorities getting married is a waste of shareholder value.  Why don’t we just start calling them diversities instead of minorities?  I’m not racist, the patronizing of minorities over the past decade is just ridiculous and offensive to everyone.

Related posts:

1. Weakon 151: Banking Industry Explained, Part 2
2. Weakon 151: Banking Industry Explained, Part 1
3. Weakon 115: Financial Industry
4. Bank Industry Looking to Reorganize?
5. Ken Thompson Canned: Financial Services Industry Shakedown

Related posts brought to you by Yet Another Related Posts Plugin.

Liked this post? Hated this post? Hate me? Email me and let me know: Philip@weakonomics.com