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Bob Lyddon, General Secretary of IBOS Association, comments in The Economist Intelligence Unit’s Good Bank report, a concept for improving the global financial industry:

“For corporates a good bank has to be international because the world is globalising. It has to have international reach.” (p.5)

“I think it could actually be quite dangerous to get a lot of specialists in who pick off individual areas that they regard as more attractive.  The whole point  of a big bank is having lots of legs to stand on.  If one isn’t going well, the others support it.” (p.5)

“A problem with banks generally is setting an unrealistically high return on capital expectations—they often use 25%, a target set in the 1980s when inflation was 15%—and that requires them to take on too much risk. They push themselves up the risk profile.  Every two or three years they have a big credit loss and then their return on capital comes down.  So we’ve ended up in the cycle of boom and bust.” (p.8)

Bob Lyddon offers an analogy, referring to minimally capitalised new entrants in the UK banking market called “payment institutions” and “eMoney institutions,” which are allowed to start up with as little as €350,000 in capital.  “Imagine that you answer your doorbell and see a 17-year-old boy. He says, ‘That’s a nice BMW you’ve got on the drive. I’d like to drive it. Look, I just passed my test, here’s my full licence, so just go and phone your insurance company, put me on as a named driver, give me the keys and I’ll be off.’ Would you give the boy your keys?” (p.13)

The report can be found at the following link:  The Good Bank Programme Report with Bob Lyddon comments September 2013