Banking in 2029

The BankerVision blog yesterday wondered what banks would look like in 2029. Here is the short of the views presented by BankerVision:

I present, as a working hypothesis, the idea that banks may no longer have a significant economic role in 2029.

I don’t want to rain on BankerVision’s thinkfest, but I am not feeling this position. It is simply impossible to consider the future of “banks” in 2009, 2019, 2029 or whenever without being specific about the banking function, and the BankerVision blog was not specific at all. Sure, the wave of personal finance applications online, for example, have the potential to dis-intermediate retail banking ventures, but these apps clearly do not have the same ramifications for commercial banking, let alone wholesale banking or securities banking. It is hard for me to imagine financial enterprises that possess vast quantities of capital not playing “significant economic roles” in, say, huge syndicated corporate loans. Will it be a “bank” that possesses such a vast quantity of capital? Who knows. But the function of a syndicated loan offers the same economic bang whether it comes from a Bank (capital B) or some enterprises that holds a great amount of Capital (capital C).

Let’s not simply call something innovative because it goes by another name. BankerVision finishes his post like this:

In the next 20 years, no matter how provocative I am with new consultants coming into the bank … I do think the moves we all make now will determine whether banks are able to – or even want to – retain their economically central role in the future. My own view is that a move to the periphery is inevitable.

Crowds.

The only thing is “crowds” are very much a part of banking today already. Is it not true that wealth is created and un-created by the moment by crowds affecting publicly traded stocks, and is that wealth not a source of capital for those public companies? There is a reason why the word “banking” is embedded in the phrase “investment banking.”

No, the innovation I see in 2029 is not in form, but in function. “Banking” will always take place, and what I mean by that is capital management, acquisition and allocation will remain an important economic fixture. That is unless the US moves to some alternative communist economic reality. Not likely. What will change, however, is the way in which “banking” is done, and mainly the innovation by 2029 will come in our understanding, assessment, allocation, and management of risk. The flexibility in banking that we all pine for today can only come about after institutions providing banking services vastly enhance their risk management practices. Everything roots from risk management. Fully 30 years of evolution in banking has come undone in the last two. Every gain made in quantitative analytics — gone faster than you can say, “Geithner, give me my tax dollars back.” Twenty years is about the duration of time needed to get that groove back, to return to a scenario where quantitative assessment is accurate to the millimeter, rather than the mile. From there all other “banking” innovations can bloom.