Finance Reset The Good New Days of Banking

An elder statesman of German finance, the late Ludwig Poullain, called for banks to rediscover the industry's mission and values. But a Handelsblatt author argues that urgent reforms, not just nostalgia, are what's needed to enter the future.
Bankers with morals - just a memory?

Three years ago when Handelsblatt asked Ludwig Poullain to write a column about investment bankers’ errors, the former head of German state-owned WestLB bank argued that modern money managers had lost traditional values like decency and tact. Such virtues may sound a bit out of date to many people today.

Mr. Poullain, an elder statesman of Germany's financial industry, who died this week, came from another era.

During Mr. Poullain's term in office at WestLB in the 1970s, bankers had a different idea of their role, and the financial sector had not yet swollen to become the threat that it is today, even to the most powerful economies.

Because Mr. Poullain came from a different era, he was able to become one of his industry's most prominent critics later in his life.

He called for greater honesty and solidarity.

“Bankiers” remain liable with their own money for their transactions.

His “angry speech” from 2004 was almost prophetic.

He castigated his colleagues' unchecked obsession with growth and their lack of “honorable, moral principles.” Three years later, as is well known, the financial crisis began.

Of course, Mr. Poullain's diagnosis was and remains correct.

And yet things are not quite that simple.

The financial industry’s growth also has positive aspects and Mr. Poullain knew this.

It was he who rapidly expanded WestLB's empire during his term in office. At the time, the bank was competing with Deutsche Bank to become Germany’s largest domestic financial institution.

Now let's take a look at the problematic contrast of how the job of banker is described: There are bankers and “bankiers.” The distinguishing characteristic of “bankiers” is that they are personally liable for their transactions, while bankers are simply employees.

That wasn't the case with WestLB.

In the end, when the bank went bankrupt, Germany's taxpayers footed the bill. The lack of personal risk to management was one reason the bank fell hard after excessive expansion 35 years following the era of Mr. Poullain.

The banking industry's good old days are not necessarily as bright as they may appear through the rearview mirror. 

In the early post-war years of West Germany, banks were relatively simple institutions that were easy to understand. They collected money from savers and loaned to companies such as Daimler, Siemens and Volkswagen, which then went on to conquer the world.

But in the globalized financial world, the mediators between assets and debts have become producers. They make increasingly complex investment products, without which the financial crisis would not have been able to spread so rapidly to all corners of the economic world.

Virtues such as decency, solidarity and tactfulness are not dependent on the economic sector in which one works.

But the products also helped finance the growth of world trade and the rise of developing countries, delivering many years of prosperity and growth for Western industrial nations.

Mr. Poullain's greatest contribution was to see much faster than most of his colleagues that compared to the real economy, the financial sector had grown way too fast. This rapid growth created a system that ultimately nourished itself most of all, and in which moral scruples ceased to play a significant role.

This is finally being corrected. The unyielding scrutiny of monitoring institutions is compelling banks to take the promised cultural transformation seriously. At the same time, the tough decrees of regulators are seeing to it that the sector shrinks to a healthy size.

But modern bankers are far from turning back into old-fashioned “bankiers.” Nostalgia is not a solution for a financial world that has become much more complicated and networked in recent decades. In fact, many of the complex instruments developed by banks were not, or at least not primarily, designed for self-enrichment, but were once responses to the complex problems of their customers.

Of course, this does not mean that today's bankers should not derive inspiration from Mr. Poullain's value system.

Because virtues such as decency, solidarity and tactfulness are not dependent on the economic sector in which one works. The values are neither modern nor old-fashioned, but simply timeless.

 

To contact the author: [email protected].