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A Blueprint for Better Banking
Harriman House Publishing , Sep 2009, Pages: 208
A Blueprint for Better Banking :Svenska Handelsbanken and a proven model for post-crash banking
'Svenska Handelsbanken' takes a fresh look at the financial crisis. It sets out to answer specifically what the mistakes were that banks made and how this could have been avoided. What is unique about this book is a detailed description of a large bank that operates very differently from its peers and that has, as a result, steered well clear of areas that have brought many other banks into trouble. This provides a number of insights into how a more resilient, post-credit crunch banking system should look like.
The first section starts with an overview of existing explanations of the credit crunch and why they remain partly unsatisfactory. It then sets out an alternative framework around seven behavioural patterns of financial institutions of imprudent banking. They have caused most banking crises, including the current one, and while they come in different shapes and forms they remain essentially the same. This book examines why the Seven Deadly Sins remain extremely tempting to bankers, often with the enthusiastic support of their shareholders and no meaningful objection by their regulators.
The second and main part of the book is a new and extensive description of the management practices at Svenska Handelsbanken, a universal bank operating in a number of countries in Northern Europe. Handelsbanken is one of the top 25 banks in Europe. It was not just the only bank that survived the Swedish banking crisis in the 1990s without asking for government support - it has also done very well in the 2008/2009 crisis. Handelsbanken did not have to raise capital or ask for government support and its shares have been the best performing European bank stock by a wide margin. Despite its large size Handelsbanken has, in many ways, acted as a shock absorber, not a shock amplifier, to the financial system.
The bank has traditionally been run by management practices that are diametrically opposed to so-called “best practice”. The book investigates how Handelsbanken operates without bonuses and examines their unique organisation, strategy discussion, risk management, and capital markets communication. In effect, the book describes how Handelsbanken ensures that it does not fall for any of the Seven Deadly Sins. Niels Kroner has conducted over fifty interviews with Handelsbanken executives and competitors, and he draws on his inside experience with many other institutions to bring out the important differences between the 'Handelsbanken way' and common practices at other banks.
The final part summarises what other banks and financial institutions can learn from Handelsbanken. It also reflects critically on mooted regulatory changes such as higher capital requirements for all banks or those too big to fail, or a separation of investment and commercial banking. Based on the Handelsbanken example these are shown to miss the real issues.
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