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Why banks are structurally incapable of efficiency

Published 19/10/2010 00:00:00

I read yesterday a fantastic article in the FT by Tony Jackson. It is a brilliant analysis why Banks make all the mistakes they make - he says that, "most economic activities work best if people on the ground are free to make decisions. In banking, by contrast, decisions have been sucked into the centre. The result is huge inefficiency and misallocation of capital".

It is above the usual "bank bashing" articles and definitely worth reading.  You can find the article at http://www.ft.com/cms/s/0/4ee30888-da04-11df-bdd7-00144feabdc0.html

Perhaps I can make one proposal to help solve the problem: there is clearly no cross fertilisation operationally between banks and their clients. Bankers seem to be promoted through the ranks totally removed from the business experience. In fact all the bank managers I have met in my life have very little knowledge about the basic operation of a business other than what they learnt in some training sessions or perhaps read in some training manuals. In other words it is all theoretical know how!

Perhaps banks should employ real business people as "non executive consultants" (I emphasise the words real business people and not just professional consultants).

Anyhow the article is worthwhile reading

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