BANKS

What is a bank? The answer to that question is not as easy as it might appear at first sight. In the Glass-Steagall Act of 1933, which was one of the U.S.' answers to the Depression, it was defined as an organisation which took in deposits and made loans. But banks got round that rule by setting up holding companies with subsidiaries that did one or the other but not both. Eventually the exceptions got to be so numerous that the act was abolished.

Banking has a contradiction at its heart; people can withdraw their deposits on demand, but banks can't liquidate their loans as quickly. As such, it requires a suspension of belief, namely that not everyone will withdraw their money at the same time. And that in turn suggests that managers of banks ought to be cautious and dull. The biggest lesson of the past 15 years is that bank managers are not nearly as cautious and dull as they should be.

Which makes the decision of General Electric to liquidate its in-house bank GE Capital very welcome. GE makes things like light bulbs, nuclear reactors and jet engines. Yet at the time of the 2008 crash, GE Capital had grown to become the fifth biggest lender in the United States, too big to fail. It's hard not to think that at least some of the time, GE Capital managers made decisions under pressure from GE salesmen. That's not a good idea.

If banking goes back to being boring, then it might not be such an attractive career option for ambitious youngsters. That would be no bad thing in my view.

Walter Blotscher