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Who will emerge?

That financial institutions have taken a massive reputational battering is not news. While our main banks will all survive, with a few spots on their records with consumers, there will doubtless be a fresh crop of non-bank institutions to take the place of the virtual massacre of the finance company sector. Who will the players be?

Maybe news from abroad can be a guide.

In Germany the banks owned by car manufacturers are enjoying some time in the sun. As they have not played the more complicated financial games that many other banks have been involved in – because their function has been much more straightforward – they are in reasonable financial shape. Then the German government rushed through a bank deposit guarantee scheme which includes them – much as it ended up including the tail of surviving finance companies here. So they have a reputation untarnished, association with some positive brands, and a shiny new guarantee. This has made them attractive to investors. Now they are growing.

Take the news that Tescos will open a chain of retail banks. We’ve had one of those of course, Superbank, and it didn’t work. But perhaps it would in the current environment. More than ever, today, people are looking for fresh faces that they can trust. That’s a tough combination to pull off. But association with an enterprise consumers can at least understand has got to be a big plus. The supermarket is at least supposed to have queues at the checkouts, eh?

So who will come? Maybe Virgin will extend financial services operations here. Maybe The Autmobile Association, or Vodafone, or an insurer – please, no – will chance banking again. Of the survivors in the finance sector those more analytical than I will be carefully scanning financial accounts for signs of hidden strength. Or will an Aussie fringe bank or non-bank take the opportunity to raise deposits and offer some sort of lending?

Next up, the question will be structure. We had a big non-bank sector. It may not re-emerge in that form. With supervision rules and the guarantee scheme making finance companies almost a bank – well, you might as well be one, and get to use the magic ‘bank’ word mightn’t you? One student of regulation said ‘next time we have a banking crisis it will be small banks going bust – unless we get this right’. I particularly admire the honesty and caution implied by the words ‘next time’. After all, this isn’t a new phenomenon, and is unlikely to be the last occurrence.

Financial advisory firms will all change. Almost no financial services business has been wholly unharmed.

Most brands will undergo significant change as the market slowly recovers. Above all else consumers must be convinced that things are now different. So it will be all change there too. New theories of advice will be needed. New practice too. This will mean a period of necessary introspection.

Finally we have consumers. Their behaviour will change. In stead of the dreams of leveraging up we will have more focus on budgeting, debt-repayment, saving, and new income generation methods. The extent of the shift will partly be determined by the extent to which we control inflation. Half that lies within our own hands – stopping wasteful and inflationary spending, for example. The other half lies in the hands of foreigners – and how our terms of trade, interest rates, and productivity play out in global markets.

Some of the so-called remedies being promoted to try and limit the downside of the recession in the short term may be working against medium to long term behaviour changes that are desirable consequences of it.

When experience rating gets a bad name...

Can you imagine a situation where experience rating gets such a bad name that it is abandoned? How badly, and over how many years, would a losing public relations battle have to be fought for our politicians to side with the less well informed part of public opinion and ban experience rating? Don't think it oculd happen? We had best be on our guard. Link.

Saving Money

If you have been amused by recent news stories about government cuts - and it is easy to be amused by them, here in the relative safety of Auckland, where fewer such cuts will fall - then you might enjoy two stories.

One person I know was telling me about their experience around the early childhood education rules. A new compliance regime was coming in and they were invited to a training programme on the new rules. When they arrived they were astonished to find that they were the only attendee - there were two staff from some ministry or other. That's a teacher - pupil ratio that most schools would certainly envy. Even more hilarious - the implementation of the new rules was put on hold the very next day, and they appear likely to be changed. A private organisation would probably have cancelled that training session.

Next up is my discovery of this website. It's about how to buy cars that are safer, 'greener', and produce less emissions. All good you say. Except that the challenge of buying cars on this criteria is hardly new, and has been tackled very well. The Autmobile Association does a fine job. So does Consumer. So do countless car magazines - and yes, if you look inside they are not ALL about barely legal racing cars. Then again, so do a variety of pressure groups. Even, dare I say, it vehicle manufacturers provide plenty of information... but no, we have another website, this one provided by the government. As we know, they always do things so much better.

But this is a game anyone can play. For weeks leading up to the election Bernard Hickey blogged daily, with the help of readers, on the latest example of wasted expenditure by our pals in Wellington. Well, the spending didn't stop on election day.

The alarming rise of things we can't do without

A shrinking economy means that there will be less - this is unusual. For a very long period of time New Zealanders, and the world, has enjoyed rising incomes. Maybe not rising quite as fast as your local authority could think of new ways to waste your cash - but rising fast enough to allow us to spend more. COupled with rapidly rising house prices that fueled a consumer boom. Consumers may be cutting back.

That thought has prompted some great writing. This piece by David Hepworth, caught the eye of my author and writing guru on the team, Michael Larsen. It should be required reading for anyone who wants to counsel their clients against financial excess.