Week 12: Banking is not about trust

Dear all,?

Most of the time it starts as a whisper, behind the closed board doors or among the few that actually know what is going on. Then it turns into a full blown tornado.?

There is not much in between. When they fall, banks fall violently, hard and brutal.

It is almost fascinating to read newspapers and follow analysis and views, opinions and comments on SVB and Credit Suisse last two weeks. We talk hundreds of thousands articles, each and everyone searching to provide insight to a reader or viewer on what, why and how all of it could happen.

Yes, we have seen it before and we have witnessed it many time before, yet, it still makes a headlines for weeks. Banks don’t fall. They cant fall. People running banks know that. People overseeing banks know that. Politicians know that. Banks are part of economic engine of capitalism that connects all of it together.

Yes, casualties of misbehaviour are costly for many and consequences dire for months, sometimes years. Losses are socialised, gains privatised.

It is a covenant we sign on to every single day. It is said by many that banking is all about trust. Once it is lost, it takes years to regain it. I disagree with this. It is not about trust. If it was about trust most of the banks would be out of the business long time ago. Fear has much more to do with it and banks operate in the sphere of fear and greed, usually presented as “prudent risk taking for the benefit of the client and off course for the benefit of the bank”.

It sound as “we share the risk taking”, but is in practice something much more different.

Accountability is not a vaccine, that management working in the banking industry regularly gets jabbed with. Nor is it KPI’s assigned to certain HR department to evaluate on annual basis with some questionnaire. It is part of the culture lived every single day in any organisation by people running and leading them. Hard to buy, difficult to fake and certainly very costly to miss out on.

Now, you remember 2008. Global economy lost $2 trillion. Not a single CEO has been convicted to misconduct and sentenced to prison time. Forty-seven bankers were sentenced to jail time for their role in the financial crisis, most of them in Iceland and Spain. In US where all of it started it was just one. A trader from Credit Suisse convicted for falsifying books. He got 2 years and 4 months.

Banking and trust

Well bankers may like to be associated with trust, a noble feeling, but in reality evidence suggests different. If banks are systemically critical for capitalism why are they not systemically regulated? Why are corporate charters of banks not rewritten, adjusted to the risk, when we know that accountability is so easily mismanaged? How come politicians around the world get duped over and over again?

Is it because same politicians after public service end up in the boards of very same banks. Or is it because they are lobbied to the bone, scared to act for the gain of next election. There have to be some answers to these questions.

We need well functioning banks, regulated by corporate charters developed only for banks, and we need people in the banks to be accountable for decisions they make. We don’t need trust.

Yet another warning that we hardly notice

Last week IPCC has released a final synthesis report with a “final warning”. Again. These final warnings have been raining down last 10 years like early spring rains, light and almost invisible. Almost invisible since if you compare amount of urgency in the coverage of banks and climate emergency you get this unreal feeling, like a mirage of a distant, yet non-existing world.

If the world continues to use all the fossil fuel-powered infrastructure either existing now or proposed, the earth will warm at least 2 degrees Celsius since pre-industrial times, the report said. Because the report is based on data from a few years ago, the calculations about fossil fuel projects already in the pipeline do not include the increase in coal and natural gas use after Russia’s invasion of Ukraine.

It comes a week after the Biden Administration in the United States approved the huge Willow oil-drilling project in Alaska, which could produce up to 180,000 barrels of oil a day.

The report highlights the disparity between rich nations, which caused much of the problem because carbon dioxide emissions from industrialisation stay in the air for more than a century, and poorer countries that get hit harder by extreme weather. Residents of poorer climate-vulnerable nations are “up to 15 times more likely to die in floods, droughts and storms. If the world is to achieve its climate goals, poorer countries need a three-to-six times increase in financial help to adapt to a warmer world and switch to non-polluting energy.

Simply explained: The pace and scale of what has been done so far and current plans are insufficient to tackle climate change.

More here.

Just a summer breeze?

And as you know by now there is a story within the story, as always and this one makes the SVB and Credit Suisse look like a summer breeze if you views climate emergency as systemic risk for our very survival. Which we apparently not do or have slightest intention of doing.

China, the US and Saudi Arabia are among countries that significantly altered a United Nations document that will shape global climate policy for years to come, according to an account of international negotiations preceding its release.

The report published this week was written by Earth Negotiations Bulletin, the only news organization allowed to observe proceedings when 195 nations gathered to approve a summary of climate science findings over the last five years. The document they were debating, meant to advise policymakers, is separate from the Intergovernmental Panel on Climate Change’s much longer report, which is purely technical and isn't vetted line-by-line by country negotiators.

The IPCC report stressed that continuing to burn fossil fuels threatens human well-being and the stability of much of life on Earth, with the chance of avoiding the most severe impacts moving rapidly out of reach. One of the most controversial conclusions was that greenhouse gas emissions have to be cut by 60%, and carbon dioxide pollution has to fall 65% by 2035 from 2019 levels for a 50% chance of keeping global temperature rise within 1.5 degrees Celsius by the end of the century. That’s the target that global leaders agreed on in the landmark Paris Agreement and what scientists say is needed to avoid the worst effects of climate change.

And here comes the twist…

Chinese negotiators successfully lobbied to delete a reference to those exact reductions in the final summary for policymakers, ENB reported, though they did agree to have the numbers included in an adjacent chart. China, the world’s biggest emitter of planet-warming gases on an annual basis, aims to reach peak emissions before 2030 and achieve carbon-neutrality by 2060.

Saudi Arabia, meanwhile, “strongly opposed” the inclusion of a sentence saying the use of fossil fuels is the “root cause” of climate change.

The US, the largest historical emitter, opposed a request from India, Bolivia and China to include a sentence that suggested transfers of technology would be one determinant of how quickly and deeply emissions are cut around the world. Developed countries have long been sensitive to wording about technology transfer because of intellectual property issues.

The US State Department declined to comment. And the “moral” superpower of the world, the land of Tesla’s, fjords and oil has made its mark too. Norway forced a change on a section referring to the need for “deep, rapid, and sustained” greenhouse gas emissions reductions starting this decade. The final wording just stresses the need for “strong” emissions reductions. Accountability zero.

I have of course done a proper ESG review of Credit Suisse. And it will come next Sunday when the “trust-dust” has settle a bit.

Have a great trust week!

Kind regards,

Sasja