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A Blueprint for Better Banking: Svenska Handelsbanken and a proven model for more stable and profitable banking

Book Description

'A Blueprint for Better Banking' takes a fresh look at the financial crisis. It sets out to answer specifically what the mistakes were that banks made and how this could have been avoided. What is unique about this book is a detailed description of a large bank that operates very differently from its peers and that has, as a result, steered clear of the areas that have brought many other banks into trouble. This provides a number of insights into how a more resilient, post-credit crunch banking system should look. The first section begins with an overview of existing explanations of the crisis and why they remain partly unsatisfactory. It then sets out an alternative framework based around seven behavioural patterns of imprudent banking. These 'Seven Deadly Sins' have caused most banking crises, including the current one, and while they come in different shapes and forms they remain essentially the same. This book examines why they remain extremely tempting to bankers, often with the enthusiastic support of their shareholders and no meaningful objection by regulators. The second and main part of the book is a new and extensive description of the management practices at Svenska Handelsbanken, one of the top 25 banks in Europe. It not only survived the Swedish banking crisis in the 1990s without asking for support, but it has also remained stable during the latest crisis. Handelsbanken did not have to raise capital or ask for government support and its shares have been the best performing European bank stock by a wide margin. The bank has traditionally been run by management practices that are diametrically opposed to so-called 'best practice' in the industry. The book investigates how Handelsbanken operates without bonuses and examines their unique organisation, strategy discussion, risk management and capital markets communication. In effect, the book describes how Handelsbanken ensures that it does not fall for any of the Seven Deadly Sins. Niels Kroner has conducted over fifty interviews with Handelsbanken executives and competitors, and also draws on his inside experience of many other institutions to bring out the important differences between the 'Handelsbanken way' and common practices at other banks. The final part summarises what other banks and financial institutions can learn from Handelsbanken and how its model may offer a solution that other potential regulatory changes may not.

Table of Contents

  1. Cover
  2. Publishing details
  3. Acknowledgements
  4. Foreword
  5. Introduction
    1. The Seven Deadly Sins of Imprudent Banking
    2. More Saintly Banking
    3. How Handelsbanken Works
    4. Implications
    5. About the Author
  6. Part I: Explanations for the Financial Crisis
    1. 1: General Explanations
      1. Macro Explanations
      2. Policy Mistake Explanations
      3. Behavioural Explanations
      4. But This is Not Enough
    2. 2: Bank-Specific Explanations
      1. Big Bonuses
      2. Shareholder Value Orientation as the Culprit?
      3. Bring Back Glass-Steagall!
      4. We Told You So: It’s All Because of Lax Regulation
      5. Accounting Standards Caused the Crunch
    3. 3: Banks’ Seven Deadly Sins
      1. 1. Asset/Liability Mismatches
      2. 2. Supporting Clients’ Balance Sheet Mismatches
      3. 3. Lending to Over-Indebted Customers
      4. 4. Investing in Non-Core Assets
      5. 5. Dealing with the Non-Bank Financial System
      6. 6. Münchhausen Markets: Emerging Markets and Real Estate
      7. 7. The Continuity of the Past to the Future
      8. The Temptations of the Seven Deadly Sins
      9. Problems Resisting the Sins
  7. Part II: The Handelsbanken Way of Banking
    1. 4: History
      1. Decentralisation
      2. Crisis Survival
      3. Crisis Triumph
      4. Swedish Context
    2. 5: Strategy and Business Focus
      1. Decentralisation, a Fundamentally Simple Model
      2. Possible Risks of Autonomy
      3. A Different Way of Thinking About Strategy
    3. 6: Culture and Incentives
      1. What the Branch Staff Say
      2. Mechanisms
      3. Incentives
      4. Implications
    4. 7: Risk Management
      1. Handelsbanken’s Approach to Risk Management
      2. Treasury Operations Without a Profit Mandate
      3. Risk averse
      4. Emerging markets
      5. Organisational Aspects of Risk Management
      6. A New Paradigm for Risk Management?
    5. 8: Capital Markets Communication
      1. No safety in numbers
      2. Resisting irrational investor pressure
      3. 21st century banking – the full hundred years
      4. Management Mindset
    6. 9: Reaping the Benefits
      1. Customers
      2. Staff
      3. Shareholders
      4. Is Handelsbanken Profit-Maximising?
      5. Open Questions About the Success of the Handelsbanken Model
      1. Limitations of the Handelsbanken Model?
  8. Part III: Lessons Learnt
    1. 10: Is Handelsbanken Inimitable?
      1. Responses
      2. Can We Afford Not to Learn from Them?
    2. 11: Implications for Other Banks
      1. Business Model
      2. Motivation Processes
      3. Organisational Structure and Culture
      4. Supervision
      5. Original Thinking About Risks
      6. Handelsbanken’s Habitat
    3. 12: Implications for Bank Regulation
      1. More Meaningful Reporting
      2. A New Regulatory Mindset
      3. Isolating Imprudent Banking: a Better Alternative to a New Glass-Steagall Act
  9. Epilogue
    1. Current Bad Practice is Avoidable
    2. Better Banking Already Exists and Works
    3. It Can Be Judiciously Imitated
    4. Regulators Can and Must Learn From it Too
    5. Bibliography