Tale of two bankers

TODAY, this column is devoted to a noteworthy phenomenon: an honest banker.

Let me immediately add: Dear esteemed bankers, do not get get hot under the collar; I do not mean to imply that all of you are dishonest. Bear with me.

My subject today is a Dutch economist who recently died at the early age of 66 – Professor Dolf van den Brink. His life was commemorated in several respectful eulogies in the quality Dutch press.

Van den Brink was born in 1948 with the proverbial golden spoon. He came from a family of wealthy landowners which could trace its history back to the 13th century, when they were already had a leading role in central Holland.

Van den Brink’s father was a prominent publisher, and his uncle a banker who was also minister of finance in the early 1950s. In accordance with the general stern Dutch Calvinist culture of the time, he was imbued with the value of thriftiness, frugality and honesty.

He started his career in 1976 at the Algemene Bank van Nederland (ABN). By 1997 he was appointed to management. After the ABN’s fusion with the Amsterdam-Rotterdam Bank (Amro) in 1990 – this resulted in the present ABN-Amro – he climbed even further on the corporate ladder.

Conflict with new chairperson

However, in 2000 a new chairperson was appointed to ABN-Amro, a man whose name later obtained a certain notoriety, Rijkman Groenink. Groenink was the archetypal banker who played a large role in the outbreak of the present economic crisis, which started as a banking crash in 2008.

After a period which his critics see as a time of severe mismanagement, Groenink left with a golden handshake of about €22m (more than R300m).

Van den Brink repeatedly clashed with Groenink about bank policy. After his wife suffered a nervous breakdown (caused in part by his working days, which lasted from 07:00 to 23:00), he stepped down and took a job as economics professor at the University of Amsterdam.

The philosophical differences between Groenink and Van den Brink were huge. Oversimplified, Groenink saw the bank as an instrument to maximise profit. Managers had to be stimulated to follow policies which would drive profits up in the shortest term, even if this meant taking gigantic risks. These measures included huge bonuses.

Lists with managers’ names were put up on notice boards, tracking each one’s successes or failures, which stimulated a cut-throat competition in which people did not hesitate to knife each other in the back.

Bankers only busy with their own bonuses

Van den Brink later commented about this period: “The incentives became so ridiculously big that people later were only busy with their own bonuses.”

What made things worse in Van den Brink’s eyes was that Groenink changed ABN-Amro’s course to become an investment bank. In a newspaper article he wrote of the difference between what he called traditional bankers and investment bankers, and it is worth to quote it at length:

“The management of risk is the core activity of banks. It is not about the avoidance of risk, but to take and manage these risks responsibly. When we look at the long history of banking, this is the essence of banking.

“Over the passage of time, this kind of risk has fundamentally been changing. During many centuries bankers mainly concentrated on giving credit. The bank makes its balance available for this. In the last century another form of financial intermediation and risk management became dominant, and that is the role of the bank as broker between givers and takers of money. Nowadays this activity is decribed as ‘investment banking’ ...

“In the last decades a new activity developed, that of investor. Here, I think, lies the core of the problem. This activity has moved ever further from the accommodation of the real economy. The client is no longer first, the focus is totally on taking profits out of possession where no client is in sight.”

The traditional banker, Van den Brink wrote elsewhere, “is conservative. He handles the money entrusted to him carefully. The investment banker concentrates on the short term. He actively searches risk out, to get the highest return.” And this, he maintains, led to the taking of the kind of irresponsible risks that caused the 2008 crash.

Profits plundered for their own pockets

Of course not all bankers are like that; there are many responsible bankers who take their job of managing their clients’ savings seriously. Also, not only bankers are irresponsible.

I personally know several influential business leaders who manage their companies in the same way. They favour a culture where the common good is often just a vague expression without content, where the company becomes a vehicle to be plundered for their own pockets through excessive salaries and bonuses.

In the process, not only the common good is forgotten; also the employees are often exploited to make those at the top rich.

Forgive me if I sound like a true-blooded Marxist. I am not. It is just that the life and untimely death of an honest banker like Dolf van den Brink shows that the biggest enemies of capitalism are to be found in the circle of leading capitalists.

* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.

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