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Bankers need role models like anyone else, and I believe I have found one for our financial friends in an unlikely place – a trade-journal article written 80 years ago about a small bank that no longer exists.
The story – which first appeared in the American Banker in 1931 and was published again five years ago – made it into my search results while I was Googling at work, and I was glad it did, because it details a remarkable moment in US financial history.
Consider this: in Chicago, during the Depression, the First National Bank of Englewood published “the most complete possible” statement of its accounts in a double-page advertisement in a local newspaper, the Southtown Economist.
The advertisement, the report said, “lists every bond the bank owns; it gives the price the bond is carried at on the books of the bank and the value at the market; it gives a complete list of the commercial paper holdings of the bank with the names of firms. In addition, it details its customers’ loans and without mentioning names, classifies these loans and lists them by maturities.”
Perhaps I have spent too much time as a financial journalist, but I found this disclosure positively inspirational. This was a bank that wanted to be understood – and it’s hard to express just how rare that is in today’s baroque financial world.
Nor was this the act of a liberal do-gooder or self-serving publicity hound. The First National Bank of Englewood wanted to be understood because it did not want to be tightly regulated – transparency in those days was the mark of a banker who could stand on his own two feet.
The bank’s president, John Milton Nichols, earned the nickname “100 Per Cent” because of the level of liquidity he kept on hand to pay off depositors. His determination to go it alone was made clear during the 1930s when he initially refused to join the Federal Deposit Insurance Corporation, fearing it would lead to reckless behaviour on the part of bankers and depositors.
James Grant, editor of Grant’s Interest Rate Observer and the go-to guy on Wall Street when you need someone with a memory, says Nichols was the product of more than 100 years of US business tradition that saw liquidity as “the first virtue” of sound banking. In this world, customer deposits were meant to fund short-term loans to businesses or to buy gold or silver. Longer-term lending made use of shareholders’ funds. Banks were small, and disclosures could be made easily. “A bank ought not to be a blind pool,” Mr Grant says. “I think [Nichols] was one of the great unsung heroes of the 20th century and all contemporary banking.”
The curious thing to me is how few of our leading bankers today are responding to calls for greater regulation of their businesses by embracing their inner Nichols and trying to better explain their operations to their communities.
To some extent, that’s because they can’t. The disclosure by UBS last month that it lost $2.3bn because of unauthorised activity by a single trader highlights how little leaders and directors of big banks sometimes know about their day-to-day affairs.
But I think the time has come for banks to move in a Nichols-like direction. I’m sure they would complain at first, but I suspect many of their revelations would ultimately work to their benefit. There must be some bank out there, for example, that is the leading US financier of ice-cream production. Another probably plays an outsized role in the printing of comic books or in funding the vendors who sell beer at football games. Who could hate a bank that does such things?
As a newspaper person myself (with a mortgage), I also can’t help but harbour the fantasy that today’s banks would follow the example of the First National Bank of Englewood and detail their operations in the pages of their favourite (maybe salmon-coloured?) papers. But I fear that print publications would lose this business to the websites of the banks themselves, which, after all, have the technological abilities to reproduce the reams of data needed for a Nichols-like presentation.
I know many of you are already wondering whether it would be possible for any actual human being to read a listing of all the loans and investments of one of our bigger banks. But I would respond with a question of my own: if it isn’t possible for a single person to read such an account, how is possible for a single chief executive or a single board of directors to supervise such an account?
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