Is “Low Rates Atmosphere” Killing Softly Banks?

Dal profilo Linkedin di Theo Delia-Russell, Adjunct Professor of Financial Intermediaries (Private Banking) at Catholic University of Milan

Commercial Banks are paying the highest price of the low rates environment. At the very beginning of the ECB Quantitative Easing they survived the status quo by making margins on the “prop desk” side with leveraged buying of enormous amount of treasuries and benefiting from the rate curve progressive compression. Now the party is finished, people are gone away and the Banks are empty.
Alone, with their prehistoric business model: a “salary and real estate” power based model driving them to extinction. In the recent past, the power of banks, commercial banks, have been measured in terms of numbers of branch! The more you had, the more relevance you had in the business community: how stupid … Power based on huge number of employees and enormous number of physical (empty) branches. Even the old oligopolistic advantage has disappeared, within a new “no more business restricted” environment, where the “fintech” or the new “amazon banking” model are prevailing, with new (and old!) generations passing on mobile channels.
It’s easy to understand that within the “zero rates dogma” stated by the ECB, billions of interest margins have gone away putting more and more pressure in cutting costs to survive the new environment. No excuses, and no more time for changes. Clients have gone away. Banks are not Banks anyway. Amazon is the new business model even for Banks? Ask yourself. With no inflation and zero rates, have we really saved the planet from the financial disruption?
Surely we have taken away the “flavour” of buying things (or make investment) leaving uncertainty in all our traditional or historical “buying experience”: investors are not investors any more, they are just waiting and consuming just what is necessary. We have understood that we need inflation, we seek inflation desperately.
I think that, on the contrary, we will never thank enough this long lasting financial crisis, for being an enormous engine of transformation and change in business models and life-styles. Have we suffered by that? Yes, we have. But, it will be for a better world; for the next generations. We must think that it will have been thanks to us, the “financial crisis-transforming generation”. The generation who lived and changed the centenary or millenary (for banks) inefficiencies of traditional models, by surviving “the zero rates” atmosphere!

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