In recent years, senior bankers have grown fond of using a simple metaphor to sum up the changes taking place in the global financial landscape. Banks, they proclaimed, used to be in the storage industry. But in recent years they have shifted into the moving business. The credit squeeze has raised the prospect that this trend may be reversed, with potentially far-reaching implications for the broader economy.
The moving-storage analogy may be imperfect, but it highlights a broader truth about the shift in banks’ business models. Until relatively recently, banks took deposits and extended loans, and made most of their money from the difference in interest rates between the two. But over the course of the past few decades, this began to change. Bankers realised that they could parcel up loans and sell them on to other banks or investors. This would allow them to pocket a fee for arranging the loan, while passing on some – or all – of the risk to others.
