14 Conclusion

Bad management causes failure of banks. Mistakes are made by management of banks and by management of other commercial organisations. Sometimes these mistakes result in the failure of the bank or organisation.

Since the 2008 financial crisis bankers have been accused of greed and worse. Some of these accusations were justified. Some bankers had become bankers to make as much money as possible with little or no regard for the consequences. A few infamous individuals were traders rather than senior managers. They caused their banks such losses from unauthorised actions that their bank might fail, as Baring did in 1995 and Société Générale nearly did in 2008.

The top management in the largest banks that failed were intelligent and hardworking people. They may have been greedy and ‘not here for the common good’. But it is difficult to believe that they managed so badly as to cause the largest banking and even corporate failures in history, destroying their institutions, causing devastation to their own and other countries and have their reputations tarnished forever. During the 2008 financial crisis some bank failures were devastating in terms of size and loss to the banks’ owners, employees, customers and other stakeholders. It seemed and still seems unfathomable that anybody would manage so badly as to lose over $50 billion as did Merrill Lynch by 2008. It seemed impossible that anybody would manage that badly.

Bad management, mistakes, seemed unlikely to be the reason for many of the most spectacular failures in banks. If it is difficult to believe that anybody would manage so badly as to cause such major bank failures as were seen in the 2008 financial crisis, there is one other possible reason for these astounding bank failures. Perhaps some of these banks were not managed, perhaps there was absent management.

There are two main reasons for absent management, complexity and inability to manage the complexity. Complexity partly comes about because it is allowed by regulation.

Regulation has been much criticised for being the cause of bank crisis including the most recent crisis. But regulation does not cause bank failure. Regulation provides parameters within which banks are allowed to operate and to fail. But it is up to banks to fail. If regulation prohibits a certain action or approach and the bank proceeds anyway that is breaking the law. Sometimes banks do that and sometimes there is absent management involved in that. This was the case when Salomon submitted auction bids for Treasury bonds above what the regulatory rules permitted. But it was not regulation, but absent management, that caused heavy fines and that was close to causing a failure of Salomon.

Regulation is important in the level of complexity it allows banks. Before the Great Depression in the 1930s United States regulation allowed banks to become involved in additional lines of business. The margin lending that allowed customers to borrow in order to invest in the stock market contributed to the stock market bubble, to the crash itself and to many, perhaps thousands of bank failures. The complexity of the new line of business of margin lending was beyond what these previously simple banks could manage and caused absent management. But it was not regulation but the banks’ management that engaged in margin lending that contributed to the Great Depression and caused the many bank failures. And the many bank failures made the Great Depression much worse.

Regulation often tightens after a crisis to avoid a repetition, as it did after the Great Depression. Then regulation reduced the complexity of managing banks in the United States by separating commercial, deposittaking banks from investment banks. The prime motive of this regulation was to protect deposits. An additional, probably unintended, effect was to make the management of banks less complex. Regulation had long restricted United States banks to simple one state banking. In the United Kingdom banking was historically separated into commercial and investment banking with stock broking being a specialist separate activity and this tradition was enshrined in regulations.

Tightening of regulation after the Great Depression, together with the international currency regulations provided by the Bretton Woods Agreement, resulted in a less complex banking environment. This contributed to the longest period in modern times without a banking crisis, 25 years, from 1946 to 1971. So regulation can, possibly, restrict complexity, bank failure and financial crisis. While regulation can contribute to making banks more or less manageable, it does not cause bank failure. As regulation applies to all banks, and all banks do not fail in a crisis, failure is caused by management and sometimes by its absence.

When these regulations were loosened in the 1980s and 1990s in the United States, and similarly in the United Kingdom, the complexities of managing combined commercial and investment banks appeared and were multiplied if the banks also operated internationally. In some cases, the complexity was beyond what bankers could manage and caused absent management. Citi, as the largest and most complex of these banks, became subject to United States government inspections in 1990 due to its losses from the crash on Black Monday on 19 October 1987 and in turn caused by unmanageable complexity. SG Warburg was unable to scale its management in line with its rapid and vastly increased complexity and was taken over by UBS in 1995.

After the 2008 financial crisis and Great Recession, regulation has again been tightened. This tightening has primarily been about much more of the same regulation as was in place before the crisis. It has been about requesting banks to have more capital. There have been some simplifications such as restrictions on banks trading for their own account. In the United Kingdom, deposits have been ring fenced within combined commercial and investment banks. Regulation still allows very large and complex banks, and there has been almost no reduction in this complexity, for example by splitting them up, as was done after the Great Depression. Avoiding such regulatory intervention has been a major success for the large banks. And it was a success achieved in spite of the damage caused by large complicated banks. The success has been partly achieved by the banks’ extensive political lobbying against being split up.

Regulation itself is now significantly more complex, for example in terms of the types of capital banks must hold. Complex regulation favours larger banks and consolidation, as larger banks have more resources to meet the demands of more complex regulation. Larger banks also have more resources to take advantage of any gaps in complex regulation. This can result in regulatory arbitrage, which has been a banking practice since the Medici found ways around regulation banning usury.

The historical approach showed that specialist management of banks had not been important for perhaps the first 500 years of banking, except in a few very large banks. During this period, these five centuries, almost all banks did not need management because they were simple operations. They nearly all operated in a single line of business or possibly two, and nearly all in a single location. These were simple operations so the senior bankers could carry on with banking and had almost no need for management.

There were exceptions and two of these have been considered in more detail, the Medici and the Rothschilds. They were chosen because they were much larger, involved in more lines of business and in more locations than nearly all their contemporaries. And because the source to understand some of their management was available and had been written about by great historians.

The Medici was an enormously successful bank, becoming the largest bank in Europe in the fifteenth century. Its owners amassed a great fortune, achieved the highest political office and lasting fame as arts patrons. Their growth resulted in significant complexity which in turn resulted in absent management. Regulation banning usury had made their products

more complex because interest could not be made on the deposits in their bank or the loans they made to sovereigns. The complexity related to deposits was overcome by the Medici through the making of informal gifts, closely aligned with what other banks were gifting, but not in breach of regulations because they were informal. The cash imbalance created by the papacy collecting enormous volumes of tithes made trade with Northern Europe highly complex and eventually impossible. The absent management that caused the failure of the Medici Bank was due to their political success with the fourth generation becoming de facto rulers of Florence. And this political success meant absent management and failure of the bank after 100 years.

The Rothschilds were another extremely successful bank, becoming the largest bank in the world for most of the nineteenth century. The management of this first, and for most of the nineteenth century only, multinational bank was based on family and religion. Restricting ownership to family partners and reinforcing this by extensive intermarriages continued this for three and into the fourth generation. The Rothschilds grew by line of business and territory but almost always kept the complexity to within what they could successfully manage. There were early signs of absent management such as their inability to account for their enormously profitable positions related to the Napoleonic Wars. The Rothschilds dominated sovereign bond issues and bullion trading. They overcame the complexities of political upheavals through diversification and support of those suffering local crisis in London in 1829 and in all the other four locations of Frankfurt, Paris, Vienna and Naples in the 1848 year of revolutions. James Rothschild in France required both family support and French government restructuring of a loan to survive. The Rothschilds remained producer managers at all times, although they would never have recognised themselves as anything but bankers. The Rothschilds could not find a family member willing to start up in the United States in the nineteenth century. This absence of a family member manager there eventually contributed to their comparative decline as a major multinational investment bank when the importance of the United States economy and its leading bank J.P.Morgan grew. Neither the Medici nor Rothschilds, the largest banks of their time, developed specialist management.

Growth in the size of banks results in complexity. The larger an organisation is the more complex it is to manage. Growth of the first Industrial Revolution factories was where corporate management was born. Regulation or lack of it is what allowed modern banks to grow. Once

regulation allowed banks to grow, by line of business and territory, their growth was spectacular. Mergers and acquisitions were the most important growth mechanism rather than organic growth. And the deal making of banks buying other banks became an essential part of the role of the leaders of banks. And acquiring other banks is a lot more exciting than day-to-day management. Just like being the head of a large bank is more exciting, more prestigious and better rewarded than heading a smaller bank.

Siegmund Warburg and the bank he founded was characterised as managed by a ‘renaissance prince’ until his retirement the 1970s (Ferguson 2010). Subsequent growth from less than 200 people to over 5000 in the 1990s involved astoundingly increased complexities, with little evidence of corresponding development and transformation of management. To prevent it from possible failure this large British financial institution was taken over by the Swiss giant and universal bank UBS. The lack of development of specialist management leads to absent management. This in turn made it impossible for SG Warburg to bridge the history of management of a small and simple to a large and complex bank.

Managing a larger bank is more complex than a smaller bank. In the United States some banks grew very rapidly by acquisition, and once they had grown very large they then merged with each other. Citi emerged from the merger of National Citi Bank of New York with First National Bank of New York while also starting up operations in nearly 100 countries. Banc One had acquired 137 banks in 74 different transactions over 25 years before merging with J.P.Morgan, which itself had merged with Chemical Bank and Chase Manhattan. Bank of America had grown so large by the early 2000s that it had reached the regulatory limit of a tenth of all United States deposits. In the United Kingdom, Northern Rock had taken over 30 smaller building societies. Lloyds TSB had reached a size where the competition authorities would not allow it to take over any more banks. RBS had become one of the largest banks in the world after its takeover of NatWest in the United Kingdom and Citizens Bank in the United States, which then in turn made 25 acquisitions there. The acceleration in size and complexity was phenomenal. It would be a phenomenal and at times impossible challenge for management to keep up with the resulting complexity.

These mergers and acquisitions were possible partly because the banks were listed on the stock exchange. The acquiring bank could pay for the acquisition with issuing additional shares. Most of the larger commercial banks had been listed for decades. Pure investment banks listed from 1971 and primarily during the 1980s. Additional capital also increased their

trading with their own capital and enabled them to grow underwriting of share and bond issues. The change in ownership affected incentives, particularly in investment banks that had previously been partnerships.

Incentives have always been central to bank management. For the Medici, the change in incentives with succession of general managers probably resulted in increased fractions between the branches. A lack of additional incentives for the Rothschilds’ established and wealthy positions in Europe may have been a reason why no one from the third or fourth generation wanted to go to the increasingly important United States in the nineteenth century to set up a branch.

Path dependent incentives were present in banks as early as the 1980s. It became difficult for banks not to pay bonuses in bad years because of the impact on morale and retention of the best people. Not changing these often inefficient incentive structures meant that they had become path dependent. This was absent management because nothing was done.

Change in ownership structures, in particular from family ownership and partnerships to listed corporations, was instrumental in changing incentives and management of banks and particularly investment banks. Titles were changed from partners to managing directors but with little evidence of enhanced management capability. Receiving bonuses partly in shares that could not be sold for a few years incentivised employees for this short period. But it was a much shorter incentive period than the partnership or family structure that had provided incentives to prevent failure of banks in the long term.

Incentives were directed at making more money for the bank and the bankers by lending more, taking more risk and taking over other banks. And incentives were very substantial. In some investment banks, some employees became multimillionaires in only a few years. This level of wealth meant that these employees became increasingly difficult, sometimes impossible to manage, because additional incentives or lack of the same had little or no effect on behaviour.

Incentive structures continued to promote growth but do not appear to have encouraged management including risk management. This was because incentives were often related to profit rather than specific management task. Incentives also lacked downside when things went badly. These incentive structures made banks more prone to risk from unmanaged growth.

Bankers’ bonuses were a prime target of regulation after the 2008 financial crisis, not least because of public outrage, and various regulation

limited bonuses to a maximum of one times salaries, longer pay out periods, claw back clauses or a combination of these. Although subject to more regulatory restrictions, the amount of bonuses on Wall Street in 2018 had almost reached the level of the previous highest year of 2006, just before the 2008 financial crisis.

With the exceptions of a few early banks, such as the Medici, Rothschilds and J.P.Morgan, and Citi after the First World War, banks were small and therefore simple to manage until about the 1970s. That is the main reason why banks did not develop specialist management. Management was a development reserved for non-financial institutions from the time of the Industrial Revolution in the eighteenth and nineteenth centuries and, in its modern form, in the 1920s and 1930s.

When banks grew very rapidly in size and complexity from the 1980s, allowed by regulation, management development could not keep pace. This made banking crises more likely particularly from a risk management point. Management in banks did eventually develop many of the same capabilities as in industry, particularly in retail banks, where low value and large number processing was important. Management’s development in banking segments involving high value, single-item transactions was still, however, underdeveloped by the time of the 2008 financial crisis.

People mostly join banks to be producers but not managers, to lend and do transactions, but not to manage. During the time of available banking history the story is of bankers running banks, sometimes with little evidence of management. Bankers generally did not want to manage, were not incentivised to manage and had no management training. So they managed as producer managers, with production mostly being what they wanted to do, what they were paid to do and what they were good at. Management came a poor second. Management was at times considered a second rate activity and something what restrained banking success, particularly in investment banks. This history of management in banking has been the path from the earliest banks. Managing banks as renaissance princes rather than full time, specialist managers had become the tradition, possibly even path dependent by the time banks became very large and very complex at the beginning of the twenty-first century.

The combination of increased complexity of banks and the path dependent approach of producer managers resulted in absent management. There were many banks and instances where banks were well managed and badly managed. But there were other times when some banks were not managed at all. Some of those banks failed and some of those failures

were causes of financial crisis, including a Great Depression and a Great Recession.

If it is right that absent management of banking exists and is a cause of bank failure, it is puzzling that it has not been mentioned more before. One reason may be that there was a lack of academic interest in the management of banks, so little was written about management when much was written by bankers doing banking. One possible explanation may be that most approaches to banks have been biographical, focused on a single person or a few people, economic, financial or journalistic. And there has been little focus on something that is not there.

Absent management described in other words can be detected by some of the comments made by bankers themselves. They included Siegmund Warburg being concerned that his firm was becoming unmanageable large in the 1950s (Ferguson 2010). In 1990, the chief executive officer, chairman and president of Salomon were observed as having lost the ability to lead (Sharp Payne and Santoro 2004). In early 2007, the chief executive officer of Citi was professing to keep dancing as long as the music was playing. The chief executive officer of Merrill Lynch said in October 2007 that assessment and potential risk of subprime and mitigation strategies were inadequate (Wilchins 2007). Not wrong, but inadequate, because of absent management. In 2009 a retiring Citi Board Director said that he and many others did not recognise the serious possibilities of the extreme circumstances that faced the financial system then (Rose and Sesia 2011). In 2015 the chief executive officer of HSBC said that he clearly could not know what every one of the 257,000 employees were doing, when surprising problems emerged in its Swiss operations (Hill 2015). Regulators have also talked about what was effectively absent management such as when the British regulator characterised HBOS as a group whose growth had outpaced its ability to control risk in 2004, four years before HBOS failed (Parliamentary Commission 2015).

There have been many examples of absent management in banking, once banks became large, diversified or both. If absent management causes the failure of that bank and it has no wider consequences, it is still a grave event for that bank’s customer, owners, employees, suppliers and other stakeholders. One example of this was the failure of Barings in 1997, caused by a rogue trader. A rogue trader is initially an example of absent management. When there is a continuous and complete absent management, the rogue trader threatens and can cause a bank failure. And when Barings failed, the owners lost their money and those not subsequently

employed by the new owner ING lost their employment. But there was no wider ramifications, no banking, financial, currency or sovereign debt crises.

It is when absent management in banking caused a wider banking and financial crisis, or makes another type of crisis much worse, that this absent management in banking has such devastating effects. And these are effects that range from loss of savings and pensions to an economic recession or depression that affects the lives of millions of people, sometimes for a decade or more.

Some big complicated banks manage themselves in crises, such as HSBC, which had the largest loss of any foreign bank from United States subprime lending. But HSBC was highly diversified so could cover the losses from earnings elsewhere. It also acknowledged the losses early and managed its way through the 2008 financial crisis.

Other banks simply kept lending, such as Washington Mutual. Some banks leveraged up and traded like Bear Stearns. Some banks leveraged up, lent to subprime borrowers, packaged the loans and sold them on to investors, as did Lehman Brothers. Some banks packaged and sold so many packaged subprime loans that when there were no more willing investor for all parts of the packages, the bank kept what they could not sell, one of which was Merrill Lynch. And some did all of these, a universal bank like UBS. And these banks did all this to such a degree that it is very difficult to detect any management at all. Nobody would manage that badly, so one possible, likely conclusion is that there was absent management.

And the costs of these occurrences of absent management were devastating, so devastating that it seems morbid to repeat them in any detail from the chapter on the cost of the 2008 financial crisis. The loss of savings and pensions, businesses and employment, the stress, increased taxation and indebtedness of the next generation were so costly that not preventing it reoccurring seems an absence of political responsibility. Possible impact on mortality as social spending was cut and political ramifications in the outcome of elections have yet to be understood.

The regulatory response in terms of preventing a reoccurrence of a similarly devastating impact has mainly been to require banks to hold more capital. Little has been done to make banks simpler or better managed, even managed at all. The examples of absent management in some of the highest regarded banks after the 2008 financial crisis, including in J.P.Morgan, Danske Bank and Goldman Sachs, indicate that absent management has not been addressed by regulation.

So what about the future. It is, of course, difficult for anyone to predict, particularly about the future, as Niels Bohr, the Nobel Laureate in Physics, said. Historians are notoriously poor at predicting the future, perhaps because history does not repeat itself, being much too complicated. Banking experience teaches you mainly about the here or now so is not much use for prediction either. Management consultants sometimes use optionality to at least attempt to consider a range of options of what might happen rather than what will happen.

Possible options for reducing future incidents of absent management include continuing regulating banks based on high level of capital, the current option. A second option is for banks to become less complex by line of business, geography or both and thereby less challenging to manage and less likely to fail. A third option would be to ensure that those responsible for managing banks always do so because they have the capability and are incentivised, positively and negatively. A fourth option is a combination of several or all of these options. No doubt additional options or combination of options exits.

It is possible to ask banks to hold so much capital that it cannot be eroded however absent the management. This is close to the regulatory approach currently adopted. This is an argument with some validity, but such levels of capital are unlikely to allow banks to make an attractive return on this capital. And bankers being the innovative and energetic masters of capital they have been for six centuries will find ways to expose this larger capital to risk to achieve attractive returns. Given the very large amounts of capital required for banks to appear safe from failure, attractive returns are likely to require very large risk exposures. These exposures are likely to be complicated. And if these exposures are very complicated they may also be unmanageable. So requesting that banks hold more capital is likely to make banks more rather than less complex. This option completely ignores complexity and is not aimed at reducing it. It is therefore not going to reduce the risks of absent management. It may increase it.

Regulation itself has also become increasingly complex. This makes it difficult to implement and supervise for regulators and to adhere to for banks. Substantial amounts of intended regulation have not yet been implemented ten years after the 2008 financial crisis. Many of the rules of the most important United States regulation contained in the Dodd-Frank Act are yet to come into effect. Basel III is not fully implemented. Regulatory loosening is now on the political agenda in the United States,

before all of the post-2008 financial crisis regulation has been implemented. One of the reasons the regulation has not been implemented before it is being loosened is that it is very complex.

Increased capital required by more complex regulation will not make management of banks simpler. The exception was the post-Great Depression regulation that split commercial and investment banks. Post2008 financial regulation will make banks larger and more complex, because increased regulation nearly always does. This is because larger banks have more resources to deal with complex regulation than smaller banks. So it gives a competitive advantage to larger banks. This often results in large banks taking over smaller banks although regulation has at least kept this limited to takeover of failing banks since the 2008 financial crisis. Regulation allowing mergers and takeover amongst medium and smaller banks has now been relaxed in the United States. After ten years of only a few large mergers, Truist Fanacial Corp, the new sixth largest bank United States bank, has just resulted from a merger.

Absent management was not identified as a target of regulation after the 2008 financial crisis. It is therefore understandable why the increased regulation is unlikely to reduce the risk of absent management. If anything, regulation has increased the risk of absent management.

The second option would be to simplify the banks. After the Great Depression, simplifying banks was a side effect of protecting depositors by splitting commercial and investment banks. This simplification probably contributed to the longest absence of banking crisis in modern history. One reason was because banks became simpler to manage and there was less absent management.

Given this experience and the likely cost of a future financial crisis, it is surprising that banks have not been split into separate lines of business. This would make them simpler to manage and make absent management less likely and failure even less likely. This has not happened and seems unlikely to happen now partly because of time passed since the last financial crisis and partly because of inadequate political will. In the face of extensive political lobbying by the banking sector, and perhaps a lack of understanding or willingness to face the potential economic consequences, politicians missed the opportunity to simplify banks after the 2008 financial crisis.

In addition to the Glass-Steagall Act of 1933, politicians of the past have stood up to larger corporations with anticompetition legislation such as the United States Sherman Act of 1890, the Clayton Act of 1914 and the

Federal Trade Commission Act of 1914 in the United States. The European Union has proven resilient in protecting competition and taking on the largest corporations in more recent times. But this has all been to ensure a competitive marketplace. It is difficult to find examples of political action and regulation that ensures that corporations know what they are doing simply in terms of size and complexities of management. Many governments are as bad as banks in this respect. The United Kingdom’s National Health Service is the fifth largest employer in the world, with 1.7 million employees (Nuffield Trust 2017) only exceeded by the United States Department of Defence, the Chinese People’s Liberation Army, Walmart and McDonalds. So it was perhaps difficult for the British government to tell RBS with 170,000 employees that it was too large and complex to manage.

If regulators and politicians accepted that some banks were too complex to manage, this might persuade them to request that banks need to be simpler. This could be achieved by splitting them up or banning them from some combinations of lines of business. But with politicians themselves being in charge of operations even more complex than banks, this is not easy to see being implemented.

Another possible development within the option of simplifying banks is shareholders selling the shares of banks that are unmanageable. Both Danske Bank and Goldman Sachs saw significant selling of their shares following their recent scandals. Perhaps shareholders will go one step further and push for a breakup of large complicated banks in the same way shareholders have influenced the simplification of General Electric and the proposed geographical split of insurer Prudential Plc into British and Asian entities.

As a third option, politicians and regulators could instead ensure that managers in banks, actually and always, managed the banks. The Senior Manager and Certification Regime in the United Kingdom seeks to make individuals responsible for specific functions in banks and may reduce absent management. That is assuming that these functions are not too complex to manage and that incentives are aligned with the responsibilities to manage and not just to produce.

Incentives may not work as they do, historically, not seem to have ensured consistent management. The production part of the producer managers’ role appears to have dominated. Incentives have resulted in exceptional production sometimes to the complete exclusion of management, as in some investment and commercial banks in the 2008 financial crisis. One possible approach would be for regulation to require evidence

of consistent management before any bonus could be made for production. The response to the regulations of incentives so far provides little encouragement for this approach. When incentives were limited to one times fixed salary, banks simply increased fixed salaries. Wall Street bonuses are now close to reaching the amounts paid in 2006, the highest year on record. One recent encouraging example is that Goldman Sachs is withholding part of the bonuses for its top management while awaiting clarification of the 1MBD scandal.

A change to the producer manager approach and developing specialist management in banks also seems unlikely to be successful. There are very few areas of professional services where this approach has led to improved management. The four largest accounting firms are possibly examples of better managed professional services than banks. However, their most senior partners still have relationships with clients so the producer manager approach is still present. And the complexity of the big accountants also appear too great with a prime example being the complete failure of what was previously one of the five largest accountants, Arthur Anderson, over the Enron scandal in 2001.

Bank managers would not have to be faultless, being only human. But they would have to prove that there was always someone managing not only the bank, but each and every one of its activities. In terms of the more recent examples of absent management, J.P.Morgan, Danske Bank and Goldman Sachs, this may not have gone far enough. It is possible that the sanctions against these events have yet to be fully implemented. Such sanctions may set the examples for other managers in banks to ensure that they always manage the banks, well or less well.

Perhaps other industries have something to teach banking, just as they originally taught banks the rudimentaries of management when banks became large and complex in the 1970s. Perhaps the same sanctions for transgressions should be applied to absent management in banks as is applied to ship captains or airline pilots including lifetime bans. Currently, such sanctions are only applied in banks in cases of more severe situations such as fraud and other criminal activity.

There is no real indication that management is able to effectively manage the complexity of the larger banks. Regulation requesting the banks to hold more capital, restricting incentives and making management more responsible has yet to provide a convincing certainty against bank failure caused by absent management and particularly against bank failure causing a wider financial crisis. Given the cost of the 2008 financial crisis, particu-

larly in terms of stress and cost to millions of customers, taxpayers and recipients of government support, surely this should be prevented if at all possible. The ability of central banks and taxpayers to deal with another crisis is significantly less given the cost of the 2008 financial crisis. And the most important lesson from history is that reducing complexity of banks is the only way to make them manageable, to reduce the risk of absent management and the risk of another financial crisis caused or made worse by unmanaged banks.

Producer managers will always prioritise production as long as they are incentivised to do so. Management, including producer managers, will always believe and argue that it is able to manage any size, complexity and future growth. The history of absent management in banking tells a different story.

This book has attempted to show that the complexity of banks and their producer manager approach results in absent management that can cause bank failure and financial crisis. History has shown that banks have been too complex to manage, and current developments show that this absent management continues today. Acknowledging absence of management will require humility amongst bank management. And humility has been in short supply in the history of management of banks. So shareholders of banks could influence reduced complexity by buying the shares of banks that are manageable and selling those that or not. Perhaps shareholders will pressure for the breakup of complicated banks as shareholders have done with non-financial corporates. Most importantly regulation should enforce simplicity and ever present management of banks. This will require political will on our behalf to protect us from absent management in banking and its devastating cost.

RefeRences Ferguson, Niall. 2010. High Financier, The lives and Time of Siegmund Warburg.

London: Penguin. Hill, Andrew. 2015. When is a Company Too Big to Manage? Financial Times,

February 27. Nuffield Trust. 2017. The NHS is the World’s Fifth Largest Employer. https:// www.nuffieldtrust.org.uk/chart/the-nhs-is-the-world-s-fifth-largest-employer Parliamentary Commission on Banking Standards. 2015. An Accident Waiting to

Happen’: The Failure of HBOS. London: Parliamentary Commission on

Banking Standards.

Rose, Clayton, and Aldington Sesia. 2011. What Happened at Citigroup (B)?

Boston: Harvard Business School. Sharp Paine, Lynn, and Michael A. Santoro. 2004. Forging the New Salomon.

Boston: Harvard Business School. Wilchins, D. 2007. Merrill Writedowns May Signal Broader Risk Problems.

Reuters, October 24.

Index1

A

AAA credit rating, 195 Abbey National, 81, 82, 211, 212 Abbreviations, 6 Ability to pay, 60, 155, 260 ABLV, 265 ABN AMRO, 90, 91, 213–215 Absent management, 1–13, 15–17, 19, 22, 25, 27–31, 36–38, 40–42, 44, 45, 48, 49, 51–72, 75–93, 95–115, 117–131, 133–173, 177–198, 204, 205, 207–209, 211–215, 217–219, 222–224, 227–242, 245–266, 271–285 Acciaiuoli, 15 Accountability, 4, 128, 130 Accounting, 37, 113, 209, 210, 284 Accumulating risks, 89 Acquisitions, 9, 12, 54, 61, 62, 64, 67, 75, 79, 81–86, 88, 93, 95–97, 104, 110, 128, 130, 134, 149, 159, 160, 164, 185, 188, 191, 192, 195, 204, 205, 207, 211–215, 221, 256, 265, 276 Administrations, 9, 13n1, 137, 139, 145, 263 Administrators, 9, 13n1, 134 Advisors, 100, 130, 177, 185 Agricultural Bank of China, 241 Alum, 19–21 American Bankers, 138 American Civil War, 41, 42 American General Corporation, 195 American International Group (AIG), 194–198, 229, 233, 239 American Savings Bank, 204 Anti-Semitism, 48

1 Note: Page numbers followed by ‘n’ refer to notes.

© The Author(s) 2020 C. Dinesen, Absent Management in Banking, https://doi.org/10.1007/978-3-030-35824-2 287