Connect with us

Economics

IMF Issues Global Stagflation Alert: Cuts Global GDP As It Warns Of Rising Inflation And “Dangerous Divergence”

IMF Issues Global Stagflation Alert: Cuts Global GDP As It Warns Of Rising Inflation And "Dangerous Divergence"

In its latest World Economic Outlook report published on Tuesday morning, the International Monetary Fund voiced its starkest…

Published

on

IMF Issues Global Stagflation Alert: Cuts Global GDP As It Warns Of Rising Inflation And "Dangerous Divergence"

In its latest World Economic Outlook report published on Tuesday morning, the International Monetary Fund voiced its starkest caution about stagflation yet, warning that the global economic recovery has lost momentum and become increasingly divided, even as it warned about rising inflation risks.

The fund warned threats to growth had increased, pointing to the delta variant, strained supply chains, accelerating inflation and rising costs for food and fuel. As a result, the IMF trimmed its global growth forecast and now expects world GDP to rise 5.9% this year, down 0.1% from what it anticipated in July and a bounce from the 3.1% contraction of 2020. The 2022 forecast was unchanged at 4.9%.

The IMF also cautioned that this modest headline revision "masks large downgrades for some countries" adding that "the outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions. Partially offsetting these changes, projections for some commodity exporters have been upgraded on the back of rising commodity prices. Pandemic-related disruptions to contact-intensive sectors have caused the labor market recovery to significantly lag the output recovery in most countries."

Pointing to this "dangerous divergence" in economic prospects across countries, the IMF said that this remains "a major concern." And while the IMF trimmed its growth outlook, it also warned that the global economy is entering a phase of inflationary risk, and called on central banks to be “very, very vigilant” and take early action to tighten monetary policy should price pressures prove persistent.

"Emerging and developing economies, faced with tighter financing conditions and a greater risk of de-anchoring inflation expectations, are withdrawing policy support more quickly despite larger shortfalls in output" the report cautioned.

“Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” Gita Gopinath, the fund’s director of economic research, said in the report’s introduction. “The dangerous divergence in economic prospects across countries remains a major concern.”

Among the world’s biggest economies, the IMF cut its 2021 forecast for the U.S. by a full percentage point to 6%, mainly because of supply constraints, but boosted its 2022 estimate to 5.2% from 4.9%.

The IMF also forecast that China will grow at a rate of 8% this year and drop to 5.6% next, both a decline of 0.1 point from July; expect both of these to be revised sharply lower as Citi warned that China is now entering a period of acute, if brief, stagflation. Countering this, the IMF raised its projection for the euro area to 5% for this year from 4.6%, and kept its 2022 estimate at 4.3%. Forecasts for Japan, the U.K., Germany and Canada were all cut for this year, but lifted for 2022. Low-income countries were tipped to advance just 3% this year, a slicing of 0.9 point from July.


Still, it wasn't all bad: as investors are growing increasingly concerned about the threat of stagflation, the IMF provided some comfort by saying inflation will subside to 2% in advanced economies by the middle of 2022 after peaking in the final months of this year, in other words it took is in the "transitory" camp. But it bet emerging and developing economies would still see consumer prices gain 4.9% next year after 5.5% this year.

The IMF calculated gross domestic product for advanced economies will regain its pre-pandemic level in 2022 and even exceed it by 0.9% in 2024. But only two-thirds were seen regaining their earlier employment levels. In contrast, it predicted that emerging and developing markets would still undershoot their pre-pandemic forecast by 5.5% in 2024.

The disparity is based chiefly in differences on vaccine access and policy support. About 60% of people are vaccinated against Covid-19 in rich countries, but less than 5% in low-income nations, it said. Emerging economies are also withdrawing policy support more quickly and face outsized pain from costlier food.

Overall, the fund cautioned that inflation risks are “skewed to the upside” and those for growth are “tilted to the downside." Sounds like a pretty clear warning that stagflation is imminent to us, even if Gita Gopinath, the IMF’s chief economist, said the strength of the economic recovery meant it was too early to “say anything about stagflation”, despite some supply shortages which have also boosted inflation.

“We always knew coming out of this deep contraction that the supply-demand mismatch would pose problems,” she told the Financial Times. “The hope was that it would even itself out by around this time of the year . . . But we’ve been hit with additional shocks, including some weather-related shocks, that certainly makes that imbalance persist longer,” Gopinath said.

The IMF’s central forecast is that inflation will rise sharply towards the end of the year, moderate in mid-2022 and then fall back to pre-pandemic levels, similar to the prevailing central bank narrative. But its report also noted that “inflation risks are skewed to the upside” and advised central banks to act if price pressures showed signs of lasting.

Hilariously, even as it warned about rising inflation threats, the fund said central banks should generally ignore higher prices that stemmed from energy price shocks or temporary difficulties in bringing products to market. But it should act if there are signs that companies, households or workers start to expect high inflation to linger.

“What [central banks] have to watch out for is the second-round effects [with] these increases in energy prices feeding into wages and then feeding into core prices. That’s where you have to be very, very vigilant,” Gopinath said.

The report was clear that “central banks . . . should be prepared to act quickly if the recovery strengthens faster than expected or risks of rising inflation expectations become tangible”.

That means getting ahead of the curve on prices even if employment is still weak, the IMF recommended, as that is preferable to allowing inflationary mindsets to become ingrained. “A spiral of doubt could hold back private investment and lead to precisely the slower employment recovery central banks seek to avoid when holding off on policy tightening,” the IMF warned.

In other words, don't do anything if inflation is transitory but step in quickly if it isn't. If only central banks knew which is which.

There was another warning: the IMF said that In financial markets “stretched asset valuations” meant investor sentiment could shift rapidly by adverse news on the pandemic or policy. Amid pressing concerns are the impasse over the U.S. federal debt limit and possible weakness in China’s property sector.

Finally, the IMF also had some suggestions on the biggest strawman issue around: climate change.  As a meeting of international governments on fighting climate change nears at the end of the month, the fund said “stronger concrete commitments” are needed, including tailored international carbon price floors and $100 billion of support for developing nations. It also called again on rich countries to channel a recent bolstering of IMF resources to more needy counterparts.

Looking further out, the fund said if Covid-19 has a prolonged impact, it could reduce global GDP by $5.3 trillion over the next five years relative to current projections. That could be offset if governments intensify efforts to equalize vaccine access.

Tyler Durden Tue, 10/12/2021 - 09:35

Read More

Continue Reading

Economics

How a New Orleans community land trust is providing permanently affordable housing and supporting Black entrepreneurs

The “Rebirth of 1800 St. Bernard” took place last year on a chilly December day by New Orleans standards. Attendees wore protective masks and socially distanced—a difficult feat with at least 100 people present. That day represented more than a…

Published

on

By Julius E. Kimbrough, Jr.

The “Rebirth of 1800 St. Bernard” took place last year on a chilly December day by New Orleans standards. Attendees wore protective masks and socially distanced—a difficult feat with at least 100 people present. That day represented more than a groundbreaking for residents of New Orleans’ Seventh Ward; it promised the revival of a community anchor in the majority-Black neighborhood that had been decimated by Hurricane Katrina more than 15 years prior.

At the center of this rebirth was the Vaucresson Sausage Company: a small business on St. Bernard Avenue founded by a Black family in New Orleans 120 years ago. Vaucresson Sausage had been a long-standing community anchor in the Seventh Ward, but flooding caused by levee failures following Hurricane Katrina transformed the building from a lively commercial space to a derelict and blighted property. For the past 15 years, Vance Vaucresson, the third-generation owner of the business, had struggled to find funding and partners willing to assist in the redevelopment of the building—a challenge that many Black business owners face nationwide. As the years multiplied, the Seventh Ward lost more of its Black-owned businesses and began to experience the displacement of long-time residents.

It is with these challenges that the mission of the Crescent City Community Land Trust (CCCLT) intersects with Vance Vaucresson’s business goals and the Seventh Ward community. We saw the redevelopment of the sausage factory as not just about brick and mortar redevelopment, but as a pathway to restore Black businesses, stimulate economic development, reinvigorate culture, and provide permanently affordable housing.

Not your typical community land trust

CCCLT focuses on projects that promote racial equity, pro-active community stewardship, and permanently affordable commercial and rental spaces. We were founded in 2011 as a direct response to the city’s housing crisis: Katrina and the levee failures had almost overnight damaged or destroyed 70% of the city’s housing stock. More than five years later, there was little improvement—with housing prices skyrocketing and more and more families, especially Black families, becoming cost-burdened.

Black people developed the community land trust (CLT) model more than 50 years ago as a way to preserve and expand land holdings through collective ownership. Today there are at least 277 CLTs in the United States. Here’s how CLTs work for single family homes:

  • The CLT owns and develops the land and the trust is made up of community members.
  • A CLT purchaser buys the structure, and leases the land (at CCCLT, the lease is normally for 99 years).
  • Because the sales price is based on the structure and not the property, it is much more affordable than market-rate homes in the same area.
  • This allows for the family to build equity in the structure (i.e. generational wealth) and for the community to preserve affordability because when the home is resold, it’s done under a formula that splits the anticipated increase in property values to both the owner and the community as represented by the land trust.

Unlike the typical CLT, CCCLT recognizes the need not only for more affordable homeownership—but for subsidized apartments, incubator-like commercial spaces, community stewardship, and housing advocacy. For instance, our first major project was the co-development of the historic Pythian building in downtown New Orleans—which had been a mecca for Black-owned businesses, entertainment, and culture in the early part of the 20th century. We worked with co-developers to revitalize the building—which had fallen into disrepair—into 69 apartments, including 25 affordable workforce rate apartments. Unlike many affordable apartment projects that use tax credits and go back to market rate once their compliance time frame has passed, these 25 apartments are permanently affordable.

While the majority of CLTs are focused on single family housing, our equitable commercial developments give start-up entrepreneurs affordable leases, allowing the community to help preserve small family-owned businesses like Vaucresson. A recent Brookings report detailed the broad promise of commercial community ownership models, citing their ability to support the growth of local businesses and distribute wealth intergenerationally.

The importance of stewardship

For all the potential benefits, the redevelopment and co-ownership of brick and mortar buildings is inadequate without proactive community stewardship: intentional efforts to empower residents with information and tools to grow intergenerational wealth through higher incomes, asset appreciation, and entrepreneurship.

We recently completed the region’s first single-family CLT home community in the Lower Ninth (L9) Ward—where 90% percent of our buyers are Black, many are native to the neighborhood pre-Hurricane Katrina, and many are first-time homebuyers. The community stewardship with our future L9 buyers began long before these CLT homes were sold. Working with our partners, Home by Hand, Neighborhood Development Foundation, Capital One, HOPE Credit Union, and HomeBank, we trained prospective homebuyers on the CLT model of affordability, provided a 12-hour homebuying workshop, and direct counseling to improve credit issues. Research indicates that this third-party support and training can help residents withstand economic shock and retain homeownership.

Stewardship is also at the heart of the 1800 St. Bernard project. Vaucresson Sausage had been a robust small business before Hurricane Katrina, but when the family tried to access capital and assistance to redevelop their property in the wake of devastation, they were shut out along with many other Black businesses in the post-Katrina world. The Vaucresson’s do not need CCCLT’s help to run their sausage making business, but what we bring to the table is pre-development capital; relationships with funders, financiers, and the local real estate community; knowledge of real estate development; and help in growing their brand—with the ultimate end goal of growing intergenerational wealth. Now, Vance Vaucresson has that same knowledge, and as his partner, CCCLT will be there in the long term. Because of this partnership, 1800 St. Bernard will open in early 2022— featuring Vaucresson Café Creole and two permanently affordable apartments.

The Community Land Trust 2.0

This idea of the “CLT 2.0”—including a focus on renters and commercial spaces, not just single family homes—is gaining popularity throughout the nation. Black communities and other marginalized groups are evolving CLTs and expanding community ownership in real estate to fight structural racism and produce opportunities for wealth generation. CCCLT is proud to be part of the new movement.

You cannot pass a good time in New Orleans without serving good food—even during a pandemic. There should be no surprise about what we served at the “Rebirth of 1800 of St. Bernard”: Vaucresson hot sausage po-boys and their Creole jambalaya—the best New Orleans has to offer. But as good as our city’s cuisine is, CCCLT wants New Orleans to be known for more than just food and good times. We want to be known for how our city solves its affordable housing crisis, how we assist emerging, often under-resourced entrepreneurs of color, and how we help families and those entrepreneurs move toward generational solutions and generational wealth.

Read More

Continue Reading

Economics

Peter Schiff: Transitory Permanence

Peter Schiff: Transitory Permanence

Via SchiffGold.com,

The inflation that we were emphatically told would be transitory and unmoored continues to persist and entrench. As the troubles gather momentum Washington is doing its best to ignore..

Published

on

Peter Schiff: Transitory Permanence

Via SchiffGold.com,

The inflation that we were emphatically told would be transitory and unmoored continues to persist and entrench. As the troubles gather momentum Washington is doing its best to ignore the problem or actively make it worse.

The latest batch of data shows that the Consumer Price Index rose 5.4% in September, the 5th consecutive month that year over year inflation came in at more than 5%. The figure rises to 6.5% if we project the inflation levels of the first 9 months of 2021 to the entire calendar year. The last time we had to contend with numbers like these, Jimmy Carter was telling us all to put on our sweaters.

Recent developments should be sounding the alarms. Whereas earlier in the year inflation was largely driven by supercharged price increases in narrow sectors, such as used cars and hotel rooms, it’s now occurring in a much wider spectrum of goods and services.

In September, the cost of used autos fell month over month (but are still up 24% year over year), but that didn’t help the overall CPI, which saw increases just about everywhere else. Over the past 12 months: beef prices are up 17.6%, seafood prices up 10.6%, home appliances up 10.5%, furniture and bedding up 11.2%, and new cars up 8.7%.

Even more alarming is that oil is up over $80 per barrel for the first time in almost 10 years and many analysts see $100 in the near future. That has translated to more than a $1 increase in per gallon gasoline prices, a 50% increase in a year. Home heating oil prices are already up 42% year over year and are expected to spike up again when winter demand peaks.  For many low-income residents of the North and Upper Midwest, these types of increases could be very hard to bear, particularly if we have a cold winter.

As I have said many times before, the biggest flaw in the way we measure inflation (and there are many of them) is how the government deals with housing. While the Case Shiller Home Price Index is up more than 20% year over year, and national rents are up more than 12% over the same time frame, the CPI has largely ignored these increases in housing costs. Instead, the government relies on the dubious and amorphous concept of “Owners Equivalent Rent” which asks homeowners to guess how much they would have to pay to rent a house of similar quality to the one they to the one they own. Conveniently, that meaningless figure, which constitutes almost 30% of the total CPI, is only up 3% year over year. If actual rent increases were used instead, the CPI would be almost three full percentage points higher.

In fact, relying on the government to tell us the truth about inflation is a bit like asking high school students to grade their own report cards. There are countless incentives that exist institutionally for the government to underreport inflation. It allows them to make stealth cuts to Social Security, to create higher nominal incomes and capital “gains” to tax, and to minimize the interest rates it pays on over $28 trillion in debt as inflation. But since GDP is adjusted for inflation, it also makes economic growth appear higher than it really is.  The methodology for computing the CPI index was specifically designed to minimize the impact of rising prices. But I don’t believe that this is a conspiracy. Once you understand how institutional bias works, how careers are made by finding new plausible ways to underreport inflation, and how they are ruined by claiming the opposite, you can see how the numbers get farther away from reality with each passing year.

But the disconnect has become so obvious that top officials at the Federal Reserve and the Treasury Department have begun warning the public to prepare for higher prices. In her latest exercise of goal post moving, Treasury Secretary Janet Yellen said, “I believe that price increases are transitory, but that doesn’t mean they’ll go away over the next several months.” We can expect that months will soon turn into years, as the definition of “transitory,” gets ever more elastic.

This week the government announced that the inflation-adjusted cost of living increases for Social Security payments in 2022 will be 5.9%, the highest such increase since 1982. In addition to throwing yet another log on the government deficit fire, the increase is a direct admission that inflation is not going away.

Despite the marginal increase in wages that the Biden Administration likes to talk about, or the cost of living increases for our seniors, the average American makes less money. After adjusting for inflation real hourly earnings in the United States have dropped 1.9% so far this year. This is the stagflation that I have been warning about. Welcome back to the Carter Administration. We can expect Joe Biden to break out our sweaters if home heating bills get too high this winter.

Team Biden has been working overtime to suggest that the price increases and supply shortages are resulting from temporary bottlenecks at port facilities. Imports are particularly sensitive as our trade deficit has widened to record levels in recent months, making Americans ever more reliant on overseas goods. To combat the problem the Administration has ordered that some ports begin to operate 24 hours a day. (Left unsaid was the very fact that American ports – due to the strength of the Longshoreman’s Union – operate at very spare schedules versus foreign counterparts).

But the effect of this order will be far milder than the Administration hopes. Firstly, it is unclear how many port facilities will comply. Some have noted for instance that the Port of Los Angeles agreed to go 24 hours at only one of its six docks. (Currently, the wait time to enter that port is approaching three weeks). And secondly, most industry analysts note that the problem is not the hours of the dock facilities themselves but the shortfalls of the domestic trucking industry to move the goods once they arrive. Not only are we struggling with a lack of drivers, who struggle with government regulations that sharply limit the number of hours they are allowed to drive, but a lack of shipping containers to put back on the ships. Since many ships refuse to leave unloaded, which greatly reduces their profitability, America needs to first solve a host of problems to get the ports in better order.

But what we are seeing in a larger sense are the fruits of 15 years of bad investments in things that we don’t need and very little investment in the things we do. The ultra-low interest rates that have become the bedrock of our bubble economy have channeled investment capital into the wrong places. These low rates have encouraged corporations to borrow recklessly to buy back shares and inflate stock prices. Such moves have enriched shareholders but have done little to expand productive capacity.

Low rates have also led to runaway speculation in untested and unneeded industries. We have seen massive investments in social media, e-commerce, entertainment, cryptocurrencies, financial technology, and most recently Non-Fungible Tokens (NFT’s). As a result, we have really built out our capacity to post videos, buy things online, and pay for them in new ways. But we have invested comparatively little in boring industries like manufacturing, energy, transportation, and agriculture. As a result, we have all sorts of ways to buy stuff, and gimmicks for how to pay for it later, but we lack the capacity to produce and distribute all the goods we want to buy in the first place.

What’s worse is that given the current policies of the Biden Administration, none of that is going to change anytime soon. His expanded social safety net programs, overly generous unemployment benefits, higher taxes and regulation, and unneeded vaccine mandates are discouraging workers from working and employers from hiring. The American workforce is more than five million workers smaller than it was before the pandemic. That is not an accident. If the Democrats get their caucus together long enough to pass even a slimmed-down version of Biden’s Build Back Better plan look for all these problems to get worse.

With fewer workers working, supplies of goods and services have diminished. Government will look to replace the lost production with even more monetary and fiscal stimulus, which just leads to more inflation, financial speculation, and rising asset prices, largely benefiting the wealthy, and falling the hardest on the poor who have no appreciating assets to compensate for the rising cost of living.

But rather than fixing the problem, our current leaders are mostly worried about equity and diversity. The five leading candidates to replace Jerome Powell, if he is not renominated, all are either female or African American. Now I have no problems with hiring women or minorities in key positions. But if all your candidates come exclusively from those groups, then it’s clear that identity is more important than competency at this moment in time. But if there was ever a time that we needed competence, it’s now.

Tyler Durden Fri, 10/22/2021 - 09:10

Read More

Continue Reading

Spread & Containment

UK Banks – Digital Dinosaurs

UK Banks – Digital Dinosaurs

Authored by Bill Blain via MorningPorridge.com,

“Tuppence wisely invested in the bank…”

As UK bank reporting season kicks off, the dull, boring, predictable UK banks should look good. But the reality…

Published

on

UK Banks – Digital Dinosaurs

Authored by Bill Blain via MorningPorridge.com,

“Tuppence wisely invested in the bank…”

As UK bank reporting season kicks off, the dull, boring, predictable UK banks should look good. But the reality is they are dinosaurs – their failure to digitise and evolve leaves them vulnerable to tech-savy FinTechs and Challenger filling their niche. If the future of modern finance is a Tech hypersonic missile… British Banks are still building steam trains. 

Today see’s the start of the UK bank reporting season. Yawn….

I wrote a piece for the Evening Standard y’day – Another set of numbers to disguise the rot. (I’ve reused some of it this morning – lazy, eh?) Exactly as I predicted in that note, Barclays came in strong this morning with a decent lift from its investment banking businesses. Lloyds and HSBC will also produce acceptable numbers and limited losses on post pandemic recovery.  The sector outlook looks positive, the regulator will allow them to increase dividends, and there is higher income potential from rising interest rates.

But… would you buy the UK banks?

They face substantial market and ongoing pandemic risk. The cost of economic reality falls heavy across them all. This morning the headlines are about Medical groups screaming out for a renewal of lockdown measures to protect the NHS – a move that will 100% nail-on recession and cause multiple small businesses to give up. The threat of recession in the UK is pronounced – exacerbated by global supply chain crisis and risks of policy mistakes. The worst outcome for banks would be stagflation resulting in exploding loan impairments.

Lloyds is the most vulnerable to the UK economy – hence it’s underperformed the others. Even without renewed Covid measures, potential policy mistakes by the Bank of England in raising interest rates too early, or by government by raising taxes and austerity spending, will hit business and consumer sentiment hardest, causing the stock prices to crumble back towards its low back in Sept 2020 when it hit £24.72. It’s got the largest mortgage exposure – but no one really expects a significant housing sell-off. (When no-one expects it – is when to worry!)

If you believe the UK’s economic potential is under-stated, then Lloyds has the best upside stock potential among the big three. If the economy recovers strongly, Lloyds goes up. If it stumbles, then so will Lloyds!

Barclays is a more difficult call. It’s a broader, more diversified name. It retains an element of “whoosh” from its markets businesses – which have delivered excellent returns from its capital markets businesses fuelled by low rates, but it also runs a higher-than-average reputational risk for generating embarrassing headlines. But, when the global economy normalises, higher interest rates will impact the fee income of all the investment banks, thus impacting Barclays to a greater extent than Lloyds. Barclay’s international business gives it some hedge against a UK economic slide.

HSBC is the most complex call. The UK banking operation is a rounding error compared to the Bank’s Hong Kong business. The bank is pivoting towards Asia, orbiting China and other high-growth Far East economies where it seeks to attract rising middle-class wealth. It’s underperformed due to a distaste among global investors for its China business, but also the perception it’s just too big a bank to manage effectively.

If its China strategy was to pay off, it will be a long-term winner. But that’s no means certain – Premier Xi’s crackdown on Chinese Tech threatens to morph into a China first policy, and the space for a strong foreign bank in China’s banking system looks questionable, even as the developing crisis in real-estate could pull it lower.

Ok – so good for UK banks…

Whatever the respective bank numbers show this week, the banks will remain core holdings for many investors. Generally, big banks are perceived to be “relatively” safe. Regulation has reduced their market risk profiles, and strengthened capital bases since the post-Lehman unpleasantness in 2008 which saw RBS rescued by government.

Conventional investment wisdom says the more “dull, boring and predictable” a bank is, the more valuable it will be perceived in terms of stable predictable dividends, sound risk management, and for not surprising investors. Strong banks are perceived to be less vulnerable to competition with deep moats around their business.

Since 2008 that’s changed – in ways the incumbent banks have completely missed. The costs of entry have tumbled as banking has evolved into a completely different service. New, more nimble Fin-Techs like Revolut, digital challenger banks such as Starling, and cheaper foreign competitors, including the Yanks, are not only eating their lunch, but dinner as well.

The old established UK banks don’t seem to have a clue it’s happening. These incumbent banks look like dinosaurs wondering what that bright shiny light getting bigger in the sky might be. Despite proudly boasting of hundreds years of history, they are constrained by old tech ledger systems and never built centralised data-lakes from their information on individuals or the financial behaviours of crowds to improve and develop their services and income streams.

The future of banking is going to be about Tech and how effectively banks compete in a marketplace of online digital facilities and services. Banks that you use tech smartly will see their costs tumble, freeing up resources to do more, better! (When I ran a major bank’s FIG (Financial Institutions Group) about 100 years ago – the best banks were those with lowest cost-to-income ratio!)

There is an excellent article outlining FinTechs and Challengers from Chris Skinner this morning: Europe’s Challenger Banks are Challenging (and worth more than the old names). Let me pluck a bite from his piece: “Revolut is the most valuable UK tech start-up in history and the eighth biggest private company in the world, worth an estimated US$33 billion, according to CB Insights. Revolut has more than 16 million customers worldwide and sees over 150 million transactions per month.”

The new generation of nimbler Fin Techs and Challengers can innovate product offerings with sophisticated new systems and software. In contrast, UK bank IT departments are engaged in digital archaeology.  I understand only 17% of Senior Tech positions are held by women. Within the banks, I’m told its still a boys club, where the best paid IT jobs are for ancient bearded D&D playing coders brought into to patch 50 year-old archaic systems. Legacy systems leave the big banks with impossible catch up costs.

It’s probably unfair to say the big UK banks don’t know what’s happening – their management can’t be that unaware? Surely not…. But…. Maybe..

Although the banks brag how well diversified they are with over 37% of UK board members female – how much have they really changed? Hiring on the basis of diversity is a fad. At the risk of lighting the blue-touch paper and this comment exploding in my face, I would hazard to suggest the appointment of senior ladies who’ve worked their way up the existing financial system simply risks confirmation-bias on how things are conventionally done in banking.

They might do better hiring outside movers and shakers – rather than listening to themselves.

The bottom line is its not just their failure to innovate tech that’s a crisis. Over the years the UK banks have become increasingly sclerotic – slow to shift and adapt. The middle to senior levels of banking are hamstrung by bureaucracy, a satisficing culture, stifled innovation, a compliance fearful mindset, and senior management fixated on impressing the regulators first and foremost.

If the future of modern finance is a Tech hypersonic missile… British Banks are still building steam trains.

Tyler Durden Fri, 10/22/2021 - 05:00

Read More

Continue Reading

Trending