A Recap of How the Banking Industry Created its Own Language

In today’s highly-volatile economic climate, many people look at banks as both the good guys and the bad guys at the same time. On the positive side, banks have continued to examine the economic climate around them and attempt to make adjustments that will help not only their own bottom line, but that of their customers as well. However, many experts have also looked at the role banks have played during the national and international economic crisis and hold them responsible for many of today’s problems, such as the remarkable number of home loans that were handed out to people who by most would have been considered extremely poor risks regarding their ability to pay back the money.

As a result, foreclosures skyrocketed and then many banks came calling on the federal government for a helping hand when times got tough. Even though the economy is currently picking up steam, banks are still seen by some as institutions that like to live dangerously while creating a language all their own.

A Failure to Communicate

It is agreed upon by most people that one thing that led to the economic failures in the United States in 2008 was the language used by many banks to explain various problems and how they would solve them. Using such terms as Basel second pillar, ICAAP, oversight of the SREP and other terms that only the most dedicated banker would understand, many banks put people in situations where they simply shook their heads and agreed with whatever banks were telling them, assuming those who sounded like they knew what they were talking about actually did understand their own words. After the banking crisis ended, more and more banks began to do away with confusing acronyms and industry lingo and instead set out to communicate in layman’s terms with customers and others, understanding they have a responsibility to help others understand each and every situation.

Living On the Edge

Another complaint many have regarding banks is their fondness for creating situations that allow them to reap huge profits for a limited time, while in the process creating dangerous scenarios where a bubble becomes quite fragile and eventually bursts, leading to financial difficulties for most people but often not the banks themselves. Essentially looked at as trying to manipulate financial markets, banks can sometimes have the ability to create situations that are artificially safe and sound on the surface, yet just beneath the surface are more fragile than ever. After the financial crisis of 2008, many steps were put in place to discourage or eliminate this altogether. For starters, decision making regarding risk management is now decentralized in most banks, allowing many other people from different areas to examine a situation and offer suggestions or plans. Roles and responsibilities are now more clearly defined in banks, helping to make sure a select few do not take things upon themselves and circumvent the authority of others.

As banks have had to get more serious about risk management and improving their ability to be trusted by both customers and the government, a level of risk management culture has emerged that offers renewed hope. Hopefully, the days of dangerous bubbles and confusing languages are gone, replaced instead by responsible leadership and an understanding that if one person fails, everyone fails.