Kafka and global banking

My partner was on the phone to his bank. From the tone of his voice, I realized that the matter discussed was delicate. He explained to the person on the other end of the line that some of the withdrawals made from his account through an ATM machine were not his, and that they were therefore fraudulent.

 

Initially, things did not go well. An anonymous voice responded that unfortunately, in the bank’s opinion, the withdrawals seemed to be in line with the regular movement registered for the account and there seemed to be no indication of irregular activity that could be evidence of fraud. The sad implication of this is that the answer implied that the perpetrator of the fraud was my partner himself.

 

The next few weeks were a nightmare for my partner. Finally, having established that the amounts withdrawn exceeded the amounts that he himself as account holder was allowed to withdraw in the same period of time, the bank finally decided things were not quite so normal and an investigation was initiated. The matter has still not been resolved, two months later.

 

The misfortune was about as traumatic for me. The mere thought that some vagabond could randomly identify my account, blithely initiate a series of ‘normal’ fraudulent withdrawals, have me lose days and maybe weeks of my life and lots of money on overdraft interest payments and phone bills while trying to sound honest over the phone in order to convince an anonymous voice on the other end makes me shudder.

 

During the ordeal I remember thinking "thank God we still have several banks to work with". Imagine if we would have had to discuss the issue with an official of the One and Only World Bank (OOWB). Without a doubt this would present us with a future full of horrendous Kafkaesque possibilities.

 

This leads me to think about the consolidation currently going on among banks. With every day that passes we have fewer and fewer banking institutions worldwide with which to work. This trend has been marketed as one of the seven wonders of globalization.

 

In addition to the above-mentioned problem, which puts defenseless users on the spot, I believe the trend introduces other risks which have either not been sufficiently commented on or which have simply been ignored. Among these I can identify the following:

 

A diminished diversification of risk.  No matter what bank regulators can invent to guarantee the diversification of risks in each individual bank, there is no doubt in my mind that less institutions means less baskets in which to put one’s eggs. One often reads that during the first four years of the 1930’s decade in the U.S.A., a total of 9,000 banks went under. One can easily ask what would have happened to the U.S.A. if there had been only one big bank at that time.

 

The risk of regulation.  In the past there were many countries and many forms of regulation. Today, norms and regulation are haughtily put into place that transcend borders and are applicable worldwide without considering that the after effects of any mistake could be explosive.

 

Excessive similitude.  By trying to insure that all banks adopt the same rules and norms as established in Basle, we are also pushing them into coming ever closer and closer to each other in their way of conducting business. Unfortunately, however, nor are all countries the same, nor are all economies alike. This means that some countries and economies necessarily will end up with banking systems that do not adapt to their individual needs.

 

I remember that John K. Galbraith once wrote that the economic development of the west of USA was helped by the fact that in the eastern part of the United States, banks were big and solid but that in the west, banks tended to work with much greater flexibility. The fact that some of these banks went bankrupt from time to time was simply taken as a normal cost inherent in development. Today, Venezuela's economy might be in dire need of some Wild West banks. 

 

The cost of global assistance.  When Venezuela’s banking system went down the drain, there is no doubt that the cost of the crisis was paid integrally by the country itself. In today’s world, when we see that a series of international banks are investing in our country’s institutions, I often wonder what will happen when one of these behemoths runs into serious trouble in its own country. Will we have to pay for our part of the crisis, less than our part of the crisis or more than our part of the crisis?

 

As bank mergers and acquisitions increase and stock exchanges worldwide call for more, I analyze what happened to my partner and have my own doubts. I ask myself if we should not be imposing the creation of special reserves for especially large banks. The larger they are, the harder they fall, and the greater the need to avoid disaster. 

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