Cyprus banks: system fail

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“Man has climbed Mount Everest, gone to the bottom of the ocean. He’s fired rockets at the Moon, split the atom, achieved miracles in every field of human endeavour… except crime”

Do you remember when Bond villains were proper megalomaniacs? When they plotted on an epic scale – seeking to inspire mass hysteria and panic in order to profit in some dastardly way.

My favourite was Auric Goldfinger – he wanted to contaminate all the gold in Fort Knox for 58 years so that the Chinese (I think….) would profit – or something – from it.

Let’s hope he was behind this weeks astonishing plan to “haircut” Cypriot depositors without asking first. A plan that seems guaranteed to undermine trust in the banking sector for a generation.

Maybe Auric has been stockpiling mattresses.

Restoring economies, restructuring banks, fixing the crisis – all vitally important, politically demanding and technically difficult tasks. But this time the politicos and the techies seem to have concentrated on fixing the immediate problem without thinking of the consequences.

Banking has become a technically complex business founded on a very simple, human, truth – the banking system only works if it is based on a foundation of trust. I give my money to you, you keep it safe, in the aggregate you get to use it to fund other activities, I can take my money out whenever I Iike. Capital flows, the world works.

Undermine that trust and the whole system collapses. Locking people out of banks whilst deliberating undermines that trust. It doesn’t matter if the decsion is reversed now – too late – trust has been breached. And it is going to be a big task to rebuild it.

If an airline demanded you cough up more money before disembarking you wouldn’t fly it again.

If every airline did it you’d fly less often or take the train.

If depositing money in a bank puts it at risk you wouldn’t use that bank.

If depositing money in banks puts it at risk we won’t use banks.

There’s going to be loads of fallout from this week – and it will go beyond Cyprus – but here are two observations:

1 – Cyprus is going to need some brand new banks fast, banks that are untainted by this episode, as well as some radically repositioned existing banks, if there’s going to be a chance at restoring trust. And those banks are going to have to be extraordinary, truly extraordinary to set new standards in building trust. Hard to see it now but Cyprus could well become the crucible for better banking.

2 – What happened this week is a strong argument for having non technical but brand savvy people at the table in any restructuring effort – whether it’s a country, a currency, an economy or a business.

Because those kind of people are brand builders, they have an eye on the future, on what happens next.

Because those kind of people understand trust in a human way – what it takes to build it, the huge cost of losing it, how very, very hard it is to rebuild it.

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