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.