“IN DAYS OF OLD, BANKERS WERE BOLD,” BUT…….


(OK so I am on one of my favorite rant subjects: contemporary banking.  No apologies.) “In days of old,  bankers were bold,” -but were  not giving away the bank, nor the global economy.  My framework of reference is the eleven years I spent with Bankers Trust, New  York from 1961 to 1972 (excluding  two additional  years while I was on the books but on an unpaid leave of absence following which I switched careers). In them innocent days, bankers focused on getting deposit accounts,  lending money and persuading customers to use a variety of services offered by the bank.   Corporate and sovereign country loans were the hot items.   And back then, bankers, contrary to some commentators, were not risk averse.  Most loans were repaid as agreed.  But others languished in the loan portfolio getting the attention of bank examiners, while others had to be written off.    The  saving grace then was the legal lending limit.  As I recall Bankers Trust’s was $30,000,000. in the 1960s.  BTCo had a cute marketing line back then.  Once you were appointed an officer of the bank – the first rung was Assistant Treasurer – you could go out on the road and on your own,   commit the bank to a loan to a customer of up to that legal lending limit.  .  Quite a powerul line for a young banker to throw around.  The catch was that all loans required two official signatures, yours and that of someone else similarly qualified.   The story that went around was that if you could not persuade a colleague to go on  the loan with you, the Chairman would step in to preserve the Bank’s integrity, if not its capital.    Of course, if only the Chairman would go along with your reckless deal, you could  be sure your banking career would be at an end!   To my certain knowledge, that arrangement was never tested.  And in the fullness of time, credit concerns grew in the late 1960s and loan committees took over the power to commit the bank. One of the loans I was involved with was committee-screened but turned out eventually to be a poor loan.  You might understand why when you see the offering sheet: YUIGOSLAV LOAN 001 This was the first loan to that country at the time and was arranged with the direct support of the U.S. Department of State.    It  also was unique in that it used the Floating Rate Note device first conceived at Bankers Trust. with the earlier loan to the Austrian Central Bank. ( I probably need not point out that The Socialist Federal Republic of Yugoslavia eventually broke up!) The Yugoslav loan was a daring deal,   But it did not endanger Bankers Trust, the US banking system nor the global economy.  That came later when Bankers Trust management  and that of other financial groups found commission, rather than salary, the reward framework of choice, and  began flogging new financial instruments, including derivatives and mortgage-backed assets, de-emphasizing traditional banking practices.  The result is history. And Bankers Trust eventually went to the wall, was acquired by Deutsche Bank, and its name finally erased.  See the sordid tale here:  http://en.wikipedia.org/wiki/Bankers_Trust     I still weep when I read of the death of a fine institution I was once privileged to serve. Perhaps this paragraph sheds some light on the environment of that period. “Some people who have worked at Bankers Trust claim, nevertheless, that the Gibson behavior grew out of a culture that puts an almighty importance on profits. Says a former Bankers managing director who held a responsible position in its derivatives business: ‘This is very much a management issue. Any sales force is extremely sensitive to management. If you go for several years paying and promoting certain kinds of salespeople, the message gets across that what they do is acceptable behavior.’
And the results are still coming in and culpability still being investigated. As I said at the beginning of this piece, “In days of old, bankers were bold, but…..”

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