What is the job of a banker?

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What is the basic job of a banker?
It might be worthwhile to consider the question of "what is the basic job of a banker"? Is it to make money? Is it to hold and protect deposits? Is it to make good investments? Is it to create money and lend it to people who will use it for the common good by producing wealth? Is it something else? Also think about this -- is money created to buy existing stock of a mature company a good use of the bank? We should jointly come up with a "Banker's Manifesto" and try to encourage others to pay attention.
Arnold Tubis, a business friend, sent me the following article (3/8/09). Scroll down to see my response "Yet another of the financial world's exemplars has come out in favor of a two-tier banking system in the United States. Former U.S. Federal Reserve Chairman Paul Volcker said commercial banks should be separated from investment banks to avoid another crisis like the one the United States and the world is currently grappling with, Bloomberg News reported Friday. Let risky banks pay for their risk "Maybe we ought to have a kind of two-tier financial system," said Volcker, who also heads President Obama's Economic Recovery Advisory Board, Bloomberg News reported. Volcker said commercial banks would provide customers with depository services and access to credit and would be highly regulated, while securities firms would have the freedom to take on more risk and practice trading, "relatively free of regulation," Bloomberg News reported. Comment: As readers of this space are aware, two-tier banking, discussed several months ago by my colleague economist Richard Felson, has long been favored here. Briefly, Felson argues that there should be two levels of banks. The first level: private banks that invest in higher-profit operations, offer higher interest rates and have other exotic investment products, but offer no government insurance on deposits. The second level: community-based banks that invest primarily i n conventional mortgages and other standard products, offer very low interest rates on deposits, have no high-risk / high interest rate investments, but offer government insurance for depositors. The Obama administration is expected within weeks to announce legislative proposals for banking regulatory changes and financial service reforms. Banking Sector Analysis: Felson's proposal, and the one that I favor, would place strict, low ceilings for bank executive, professional administrative and loan officer salaries. It's not likely that Volcker's recommendations, or the Obama administration's proposals, will include compensation caps that are low (under $500,000 per employee). That said, Volcker's support for the overall two-tier concept is a pleasure to see, as it brings us closer to a democratic, financially sound, responsible, and ethical banking system. We want banks to take deposits, lend, process transactions, create wealth, and perform a myriad of other functions that have helped economies grow for hundreds of years -- and that's what the two-tier system seeks. What we don't want is bank losses and recklessness paid for by the U.S. taxpayer."
My response follows. The article promotes a a good idea -- but it barely scratches the surface and does not require anything really new. It is tepid. Consider the following. All banks must get a charter from the State or the Federal Government. That charter obviously should clearly say what the bank can and can't do. The application for a charter asks the applicant what their bank will be doing. They should not be allowed to do anything except the fundamental things. There used to be a thing called "narrow" banks. They only provided basic services like deposits and loans. They have morphed into monstrosities that think bankers should primarily make money by "investing" in all sorts of opportunities. They consider buying stock in a corporation a legitimate banking job. Even though buying stock from an existing stockholder is not. in the least, the same as lending money to a company who will use that money to try to grow their business. Most bankers seem to think their basic function is to make money for their stockholders. They seem to have no concept of focusing on lending money to people who will use that money to create wealth that will benefit the country. This is extremely important. That should be part of every bank's charter. Marty Carbone

What is the basic job of a banker?

It might be worthwhile to consider the question of "what is the basic job of a banker"?
Is it to make money?
Is it to hold and protect deposits?
Is it to make good investments?
Is it to create money and lend it to people who will use it for the common good by producing wealth?
Is it something else?
Also think about this -- is money created to buy existing stock of a mature company a good use of the bank?
We should jointly come up with a "Banker's Manifesto" and try to encourage others to pay attention.

Arnold Tubis, a business friend, sent me the following article (3/8/09). Scroll down to see my response

"Yet another of the financial world's exemplars has come out in favor of a two-tier banking system in the United States.

Former U.S. Federal Reserve Chairman Paul Volcker said commercial banks should be separated from investment banks to avoid another crisis like the one the United States and the world is currently grappling with, Bloomberg News reported Friday.

Let risky banks pay for their risk

"Maybe we ought to have a kind of two-tier financial system," said Volcker, who also heads President Obama's Economic Recovery Advisory Board, Bloomberg News reported.

Volcker said commercial banks would provide customers with depository services and access to credit and would be highly regulated, while securities firms would have the freedom to take on more risk and practice trading, "relatively free of regulation," Bloomberg News reported.

Comment: As readers of this space are aware, two-tier banking, discussed several months ago by my colleague economist Richard Felson, has long been favored here.

Briefly, Felson argues that there should be two levels of banks. The first level: private banks that invest in higher-profit operations, offer higher interest rates and have other exotic investment products, but offer no government insurance on deposits.

The second level: community-based banks that invest primarily i n conventional mortgages and other standard products, offer very low interest rates on deposits, have no high-risk / high interest rate investments, but offer government insurance for depositors.

The Obama administration is expected within weeks to announce legislative proposals for banking regulatory changes and financial service reforms.

Banking Sector Analysis: Felson's proposal, and the one that I favor, would place strict, low ceilings for bank executive, professional administrative and loan officer salaries. It's not likely that Volcker's recommendations, or the Obama administration's proposals, will include compensation caps that are low (under $500,000 per employee). That said, Volcker's support for the overall two-tier concept is a pleasure to see, as it brings us closer to a democratic, financially sound, responsible, and ethical banking system.

We want banks to take deposits, lend, process transactions, create wealth, and perform a myriad of other functions that have helped economies grow for hundreds of years -- and that's what the two-tier system seeks. What we don't want is bank losses and recklessness paid for by the U.S. taxpayer."

My response follows.

The article promotes a a good idea -- but it barely scratches the surface and does not require anything really new. It is tepid.

Consider the following.

All banks must get a charter from the State or the Federal Government.

That charter obviously should clearly say what the bank can and can't do.

The application for a charter asks the applicant what their bank will be doing.

They should not be allowed to do anything except the fundamental things.

There used to be a thing called "narrow" banks. They only provided basic services like deposits and loans. They have morphed into monstrosities that think bankers should primarily make money by "investing" in all sorts of opportunities. They consider buying stock in a corporation a legitimate banking job. Even though buying stock from an existing stockholder is not. in the least, the same as lending money to a company who will use that money to try to grow their business.

Most bankers seem to think their basic function is to make money for their stockholders.

They seem to have no concept of focusing on lending money to people who will use that money to create wealth that will benefit the country.

This is extremely important.

That should be part of every bank's charter.

Marty Carbone

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