Back to the future for the banking system?

Travelling into Ashridge this morning to discuss another possible book venture, I had the chance to catch up on some of my favourite podcasts.

The latest World of Business podcast from Peter Day, entitled Let’s Start a Bank, is a real cracker and well worth a listen if you’re remotely interested in the debates surrounding the future of our banking system and how we might avoid future catastrophes.

What’s interesting is the relative absence of any conversation around regulation (quite right too) and instead the exploration of a number of innovations already taking place and calls for a much more radical restructuring of the banking system.

One particularly profound observation comes from Andrew Hilton, director of the Centre for the Study of Financial Innovation, that the fundamental design principle ought to be the creation of banks that are “small enough to fail”.

The idea that we should deliberately design for fragmentation may fly in the face of conventional wisdom in the financial services sector, but you can’t deny that increasing diversity makes a great deal of sense if it means that banks could be allowed to fail, without risking the domino effect we’ve seen in this economic crisis. (Sorry, chaps, no bailouts next time. You screw up, you’re on your own!)

I don’t know about you, but for me it’s beginning to feel a bit like the Big Crunch theory – as if we’ve reached the limits of 20th century, Six Sigma, industrial-age thinking and are turning our minds back to what we always knew was good about the approaches of ages past – doing things smaller, more locally, more personally; rediscovering old values and a real sense of social purpose.

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