Rebuilding Trust in Financial Services
Here's the silver lining for Minnesota in the global financial cloud. Media coverage of British CEO Bob Diamond and Barclay’s key interest rate manipulation followed recent news of American CEO Jamie Dimon and JP Morgan energy market manipulation. This news reminded us all that the international financial and economic systems are still in jeopardy.
The fact that financial institutions were saved from bankruptcy by taxpayers here, in Europe and elsewhere does not mean that the source of the dilemma has been corrected. Commodity Futures Trading Commission’s member Bart Chilton accurately observed that, “… we need a culture shift in the financial world—and that means all the way to the top.” When there is a chronic and pervasive series of anomalies in a system, it is the culture or paradigm that needs to be changed; a paradigm shift is not brought about by case-specific band-aids.
The good news is that paradigm shifts can start in a small context, when timely and backed by a critical mass of evidence; we need only remember Galileo’s telescope and a patent clerk’s equation, E=MC². The viability of a small fulcrum launching a financial services revolution represents an excellent opportunity for Minnesota.
Dysfunction in the financial system through manipulation of valid principles for exclusive profit can be corrected through the reestablishment of trust. It is trust, as Francis Fukuyama and others have written, that sustains all socioeconomic systems. To rebuild trust, institutions and individuals must exemplify those same valid principles in a context of balance with the interests of the commonwealth.
Greater transparency and predictability can reduce the intent to manipulate for exclusive self-interest and immediate profit. Enlightened self-interest can replace exclusive self-interest; it is termed enlightened because self-interest in the long term is ensured by encompassing the self-interest of others. Reasonable checks and balances are not destructive of freedom or entrepreneurship; they ensure the endurance of both. Issues, such as these, become obscure because they are portrayed selectively as presenting a question of either… or when, in reality and in appropriate proportions, they present the option of both… and.
For instance, derivatives have positive functions, such as hedging and providing market liquidity, but they have no intrinsic value; their value is derived from mortgages, interest rates, securities and other assets. Should derivatives trading represent many times more the trading of the assets they represent? In 2008, while the gross global product had grown to $56 trillion from $20 trillion in 1993, derivatives trading had reached approximately $530 trillion from $12 trillion! Finance is not supposed to replace the real economy with speculation; it is intended to support it while enacting proper risk management.
Enter U.S. Bancorp and Otto Bremer. U.S. Bancorp, headquartered in Minneapolis, is now the only large American bank with a Moody’s Aa3 rating. American banks and the United States itself have seen their credit ratings downgraded thanks to the excesses behind the financial debacle. Some might think of U.S. Bancorp as boring—similar to the perception of the Canadian banking system, ranked in 2011 the strongest in the world for the 4th year in a row by the World Economic Forum.
Otto Bremer Bank is headquartered in St. Paul and known for its founder’s motto: doing well by doing good. Immigrant Otto Bremer said, “To serve our clients, we must also serve their communities.” The bank has done that since it was opened in 1943; it is indicative of this formula that the bank is co-owned by the Otto Bremer Foundation, instead of the other way around.
These two institutions can spearhead the reimaging of the Twin Cities as a unique global metro area in which some banks offer financial services the old fashioned way. Greater MSP is working on rebranding the Twin Cities in order to attract investors, corporations, and talent. Beyond the perception of a metro area where globalization is happening, it is hard to think of a quality that would be more appealing, in the midst of the current international finance anxiety, than a reputation for distinctively trustworthy financial services.
It is not essential to wait until the Glass Steagall Act is reinstituted as proposed by the head of the FDIC Hoenig, who also holds as a priority that regional community banking prosper and thrive across the nation. Otto Bremer and U.S. Bank are already leading this financial system transformation and others can join them for their own benefit and that of the Northstar Global Metro Area.