Total Pageviews

Friday, 28 October 2016

The future of banking and the role of challenger banks

Blogpost: Alexandra Zeitz, St. Antony’s College, University of Oxford

Speaker: Cyrus Ardalan, Chairman, OakNorth Bank
Chair: Alexandra Zeitz, St. Antony’s College, University of Oxford

The banking sector in the UK is undergoing a transformation. In 2010, the Bank of England issued the first new banking license in one hundred years to Aldermore. From 2013 to 2016, 14 new banks have received licenses, and there were reports in mid 2016 that a further 20 new banks had applied for licenses. This proliferation of new “challenger banks” is reshaping the financial landscape in Britain.

Cyrus Ardalan, formerly Barclays Vice Chairman (Investment Banking), is the new Independent Chairman of OakNorth Bank, a challenger bank specializing in financing to small and medium-sized enterprises (SMEs). In his presentation at PEFM this term, Ardalan gave an insider’s perspective on the changes in the British banking sector and gave his explanation for the rise in challenger banks, which he chalked up to regulatory changes and technology shifts. 

The British banking sector remains highly concentrated. The “Big Five” banks (HSBC, RBS, Barclays, Santander, Lloyds) control 90% of the market in personal banking, corporate financing and SME lending. Nevertheless, challenger banks are reshaping the landscape. These include larger challengers such as Clydesdale and Yorkshire, TSB, and Handelsbanken, which in many cases are longer established and have relatively large portfolios of loans. Smaller challengers such as OakNorth, Metro, Aldermore and Shawbrook received their licenses in the more recent profusion of banks. Retailers offering financial services, such as ASDA, M&S or Tesco, are also challenging the dominance of the Big Five, but are not “challengers” in reshaping the model of banking, according to Ardalan. 

Friday, 21 October 2016

A pragmatic approach to reform of banking governance and culture

Blogpost: Alexandra Zeitz, St. Antony’s College, University of Oxford

Speaker: John Mellor, University of Leicester
Chair: Adam Bennett, St. Antony’s College, University of Oxford

What does it take for a bank to be well governed? In Michaelmas term, PEFM hosted John Mellor of the University of Leicester for a seminar on reforming banking governance and culture. Mellor’s headline argument was that the quality of bank governance is directly shaped by a bank’s culture, which in turn is defined by the purpose or objective that the bank sets itself. He used case studies of three well-known banks, Nationwide, Rothschild, and Barclays, to illustrate the determinants of high and poor quality bank governance.

While it is oft discussed, Mellor suggested that bank governance is in fact poorly understood. He argued that analysis of bank governance must begin with the bank’s board of directors, since the directors hold ultimate responsibility for the bank’s conduct. Governance, from the bank’s board downward, is influenced by both internal and external factors. Internally, bank governance is shaped by the ownership of the bank, its business model and history, while important external circumstances are the competitive and political environment and the structure of regulation. 

Friday, 14 October 2016

Ethics and cultural assimilation in financial services

Ivaylo Iaydjiev (St Antony’s College, Oxford)

Speakers: Alan Morrison, Saïd Business School, and John Thanassoulis, Oxford-Man Institute, University of Oxford

Chair: Natalie Gold, King's College London

With a string of scandals in finance in the last few years, it is not rare to hear people lamenting the decline of ethical behavior in the industry, including the Archbishop of Canterbury and Pope Francis. In their new paper, Alan Morrison and John Thanassoulis want to go further and understand the causes behind the many failures.[1] Drawing on the use of contracts of finance and their role in incentivizing certain behavior and fostering a culture, they present an elaborate model of cultural assimilation in a professional services firm.

The starting point for their argument is the moral dilemma that bankers face in acting on behalf of their clients. In considering the trade-offs of actions that are simultaneously harmful to the client and profitable to the company, traders are likely to be affected by cultural standards and the tone from the top. The question then becomes how performance pay affects such decisions and why a principal might decide to create a less ethical culture. Their model includes two versions of the actors, one based on a utilitarian Benthamite conception that focuses on increasing the aggregate welfare surplus, and the other based on Kantian duty ethics that consider actions separately from their context.