SUERF Colloquia and Colloquia Publications 1969-2003 in Figures and Locations
Colloquium 9: Bank Management in a Changing Domestic and International Environment
Helsingør, Denmark October 1980
President of SUERF and Chairman of the Colloquium: Hans-Eckart Scharrer Colloquium Book
Editors:Donald E. Fair and Franỗois Lộonard de Juvigny
Authors: R. Bertrand, H. Bockelman, B. Brittain, F. Bruni, T. Carlsson, P.A. Davies, W. Eizenga, B. Griffiths, J. Guillou, E. Hoffmeyer, R. Lab, J.M. Laporte, P. Ledoux, G. Maynard, M. Monti, I. Morison, H.J. Muller, P. Munthe, N.-A. Nielsen, A. Porta, J. Revell, N. Thygesen, J. Werding, D. Wigny. G.E. Wood.
Publishers:Martinus Nijhoff Publishers, The Hague, Boston, London, 1982, xii, 342 pp.
– To be or not to be...
“Nous sommes ici au pays de Hamlet et la question fondamentale (du) colloque ne devrait-elle pas se formuler: ‘Pourra-t-on continuer à être banquier dans les années 1980?’ Le métier de banquier devient un métier de répartiteur d’une denrée rare et, le plus souvent, selon des critères qui sont ceux de la réglementation ...” (Pierre Ledoux, Président de l’Association Franỗaise des Banques, p. 10)
“The time had come for a topic of more direct concern to individual bank managements, (facing) major new challenges: the rise in energy prices, high rates of inflation, balance of payments disequilibria, fast-growing indebtedness of lesser developed countries, rapid structural change in industrial economies and growing intervention by governments ...” (Preface by the editors, p. ix)
– On competition and convergence among financial institutions:
“... My interpretation is that competition has considerably intensified among banks and near-banks, and that it is likely to proceed further along this road as remaining regulations are eroded in the 1980s. Some movement towards universal banking is still in the pipeline, though not primarily through further
concentration; since economies of scale beyond a certain level do not seem important there was no reason to favour further concentration.” (Niels Thygesen, as general rapporteur, p. 334)
“It seems reasonable to expect that the breaking down of demarcation lines between different types of financial institutions will continue. One of the chief results of such a trend should be a further reduction in the traditional distinction between different national banking and financial systems. ... In no two countries will the role of banks in the financial system ever be exactly the same. But the secular trend is clearly for past imbalances to be evened out, and gaps filled in the range of services provided.” (Ian Morison, Inter-bank Research Organisation, London, p. 57, 58)
“Le problème le plus important, c’est de placer dans des conditions de concurrence équitable les diverses institutions financières.” (Pierre Ledoux, op. cit, p. 10, in italics in the original text)
– On the vulnerability of savings banks
“The structural weakness of the savings institutions is not that they are involved in maturity transformation by borrowing short and lending long, but that they commit themselves to fixed interest lending in a time of rapid and variable inflation.” (Niels Thygesen, ibidem, p. 333)
“In comparison with the USA, Dutch savings banks had much greater freedom to take suitable steps in response to rising interest rates – although I would argue those steps have not been sufficient. More specifically, their flexibility with regard to the asset side of the balance sheet was much greater, besides which Dutch savings banks offer a complete range of services as far as retail banking is concerned, which cannot be said of many American thrift institutions.” (Wietze Eizenga, Professor at the University of Leyde, p. 78) – On the impact of shrinking corporate profitability
“High debt-equity ratios, high borrowing costs – no doubt implying a significantly positive real interest rate in recent years – and considerably increased perceptions of the risk attaching to extensions of the real capital stock have combined to depress corporate loan demand.” (Niels Thygesen, ibid, p. 334)
“On peut aujourd’hui tenir pour acquis que, dès lors qu’elle accepte de financer des besoins permanents – et elle ne peut que l’accepter puisque les autres sources de financement sont insuffisantes – la banque renonce de facto
au remboursement de ses concours et se trouve liée à l’entreprise pour des durées largement indéterminées, en ce qui est la caractéristique essentielle de l’ère de l’endettement permanent.” (Jacques Guillou, Banque de l’Union Européenne, Paris, p. 115)
“For continued investment and growth of the entrepreneurial sector, a restoration of a positive gap, ex ante, between expected return and the cost of capital is a prerequisite. The existence of an expected adequately positive gap is decisive for the willingness of entrepreneurs to expand, for the private investor to buy shares, for the willingness of the banks and the capital market to lend.” (Torsten Carlsson, General Manager and Adviser, Skandinaviska Enskilda Banken, Stockholm, p. 112)
– On bank performance: Inflation as the general determinant of the rising cost of intermediation
“... There was much criticism on the emphasis (in the Revell Report) on inflation as the general cause that lay behind the cost of intermediation. The experts were more inclined to put the blame on such banking facts as branch expansion and in general to seek special explanations for their own countries.
In terms of immediate causation the experts may be right since inflation has little direct impact on institutions like banks whose liabilities are expressed entirely in nominal terms ... It is necessary to identify the indirect routes and to see how inflation combines with other factors ...” (Jack Revell, Professor of Economics, University of North Wales, p. 291)
– New aspects of the crowding-out debate
“When the public deficit is largely financed by the central bank through creation of monetary base, an expansion of deposits takes place which allows banks to finance both an additional share of the deficit and the borrowing needs of the private sector. Crowding-out of the private sector is thus unlikely.
By contrast, the less there is monetary base creation, the more bank financing of the public sector crowds out credits to the private sector and is unlikely to be extended without some portfolio constraints on banks. Is lending to the public sector a problem for the individual bank? The answer has been shown to depend crucially on the extent to which such lending results from autonomous bank decisions. or from portfolio constraints, rather than on the public nature of the borrower. Spontaneous lending to the public sector contributes to the achievement of a bank’s objectives, although in the long run it may downgrade in several ways both the contents of banking activity and the management style. On the other hand, lending to the public sector
resulting from direct or indirect portfolio constraints increases the rigidity of banking firms and prevents them from reaching their optimal liquidity-risk- return combination. Constraints may thus be regarded as disguised taxes levied on banks ... They (the banks) are usually able to shift part or all of such taxes on to other agents. To the extent they do so, banks may be viewed as parts of the transmission mechanism of disguised fiscal policy,as they are in the case of monetary policy.” (Franco Bruni, Mario Monti and Angelo Porta, respectively Associate Professor, Professor of Monetary Theory and Policy and Professor of Economics, Bocconi University, Milan, p. 150) – On international financial intermediation after the oil shocks
“In their task of international financial intermediation the banks will face in the eighties three interrelated challenges of major dimension: (a) to finance growing and probably more unstable international payments imbalance: this is the recycling challenge; (b) to finance the huge investments required for the development of new energy resources: the energy challenge; and (c) to finance the huge investments required in developing countries to increase productivity and alleviate poverty: this is the development challenge... Three major types of action which the bank should undertake ... (a) weigh out more carefully the price they charge for their international intermediation services, having in view particularly an improvement of the margin structure for Euroloans and a strengthening of their capital basis; (b)commit themselves to a more serious management of their country risk exposure; (c) strengthening cooperation between themselves and with international financial institutions.” (Damien Wigny, Director, Kredietbank, Luxembourg, pp. 188, 210)
“OPEC’s ability to accumulate financial assets essentially depends upon the financial system’s willingness and ability to intermediate the amounts invested. A build up of financial assets would see bank balance sheets becoming increasingly overloaded with short term liabilities to OPEC on one side and, on the other, increasingly exposed to LDC indebtedness ... Prudent banks will need to hold greater capital, reserves and liquidity to face the increasing concentration of their short term liabilities and the greater risk and concentration of their longer term assets. Borrowing margins will accordingly need to rise.” (GeoffreyMaynardand Peter A. Davies, respectively, Vice President, Director of Economics for Europe and the Middle East and Associate Economist, Chase Manhattan Bank, London, pp. 176, 177) A dissenting and contested view: “Spreads seem more closely related to industrial production in the OECD countries than to measures of US liquidity.
I would infer, therefore, that declining spreads are also associated with better
earning prospects for borrowers and therefore with lower levels of risk.”
(Bruce Brittain, Economist with the BIS, p. 232) – A turning point in regulation and supervision?
The trend toward more detailed (government) control has also been noticeable on credit markets, and has interfered with private banking activities quite considerably. Bank management has had to pay even greater homage to government requests and regulations, and to make decisions based on macro-economic considerations ... The fact that there is today growing opposition to government regulations is largely due to the notion that they are very far from being as perfect as theory would have us believe ... It is also generally agreed that the more all embracing public regulations are, the more difficult it is to avoid goal-conflicts and inconsistencies ...” (Preben Munthe, Professor at the University of Oslo, p. 261)
“We may expect that banks and supervisors will respond to the results of this analysis (i.e. of the past) particularly in the following areas: 1. Improved risk management; 2. Resistance to further erosion of profits and capitalization ...
To meet these challenges in an increasingly interdependent international banking environment presupposes ever intensifying contacts and cooperation between the parties concerned ...” (H.J. Muller, Executive Director, De Nederlandsche Bank, pp. 274, 275)
Colloquium 10: International Lending in a Fragile World