Banks should look the borrower in the eye before deciding
THE new permanent regulatory committee, established inside the Bank of England (Yorkshire Post, June 16) should start by calling in all senior board-level executives within the financing community to the Albert Hall or maybe somewhere larger.
The purpose of the exercise would be to attend a series of lectures on the difference between risk and risk management on one side and gambling on the other.
This would be followed by a test paper to see if the difference is understood.
Any bank where a significant minority (or indeed a majority) of executives failed the test would then have their banking licences suspended until such time as they have enough talent to actually pass.
While this may be fanciful, it does seem to follow how the banks themselves behave to their customers.
Risk is not assessed when you ask for financing. What you have to do is tick boxes. If you tick sufficient boxes then you will get assistance. However, if you do not get sufficient ticks, you are wasting your time shopping around, as all financial institutions use the same boxes.
I thought that underwriters would be able to help and make an assessment, but no they just check that the right boxes have been ticked.
It seems obvious to me that using this prescriptive system will actually make matters worse, as you end up taking on the same liability across the entire market.
Take housing finance as an example: if you set lax rules and let anyone borrow money then the system collapses. However, if you then tighten the rules (as now) so that no one can borrow, the system collapses. The end result is the same.
Solution. Throw away prescriptive software, empower employees to make judgments by looking the borrower in the eye, assessing individual risk, thereby spreading risk.
Don’t worry about the senior executives because they won’t notice.
They are too busy thinking of new incomprehensible (gambling) strategies.
From: Dr David Hill, World Innovation Foundation, Huddersfield.
ED Balls’ recommendation to reduce VAT by 2.5 per cent to 17.5 per cent will do little for the economy as long as inflation is running near to five per cent (Yorkshire Post, June 17).
For the 2.5 per cent will be gobbled up within six months and what good will that be? It is better that Mr Balls looks at the bigger picture and uses his brainpower in finding the means to reduce inflation substantially and providing solutions to create economic dynamism.
As usual, however, these people cannot come up with anything more complex than cutting taxes and that is why the country is in the state it is. We need strategies, Mr Balls, that create new jobs, industries and the means for our people to build a meaningful future.