Barclays CEO Resigns – Will this send a message across the Atlantic?

Today Barclays CEO, Bob Diamond, was asked to resign and this has broader meaning than the removal of a single CEO. I believe the UK regulators and government were adamant that giving him a pass was not an option. So although there was logic in letting him stay, he had to go. The signal is clear – the banks have a role in public good and economic stability. Big Banks have been remiss, and Bob Diamond is a casualty. It sends a strong message – business as usual is not an option for the Big Banks in the UK.


Some speculate that it signals the end of the universal bank. After all it comes a few days after Sandy Weill, x-CEO of Citibank spoke out about the need to re-separate commercial from investment banking. This was a shock since Mr. Weill was one of the key figures in the late 90s for creating the financial supermarkets that combine investment and commercial banking.


I think it says something else – that US regulators are unwilling to lean heavily on the banks. There is a lot of political showmanship going on in Washington, but no fundamental change. Regulations in the US are overly-fragmented, extremely complex, and crying for a complete overall. But between bank lobbying, excessive campaign contributions, and entrenched state and federal interests – we have a “rearranging of too many deck chairs” approach to the situation. And instead of taking a strong stand on key issues  (like the UK) and simplifying our structure, we avoiding the heavy lifting to fix our banking and regulator problems.


Fundamental to what isn’t working in the US is too many conflicts of interest.


A recent example of this is Jamie Dimon’s (CEO of JPMC) sits on the board of directors of the Federal Reserve Bank of New York. The US Federal Reserve Bank is strongly influenced by the opinions of this New York Federal Reserve Bank. This gives them importance influence on key national monetary policies. (There are twelve districts, New York is District #2)


Now we learn that there is another tight connection because the wife of New York Fed President William Dudley, Ann Darby, is getting deferred income checks of $190,000 a year from JPMC. Obviously the watchdog regulator having these types of links to big banks is concerning. But this is not an isolated incident – these types of relationships exist all over the state and national bank regulators and Federal Reserve Banks and Districts.


And why should we care – the fact is we should care a lot. Regulators are there to protect the public good. And we all know what happens when they fail to do their jobs – we are living with this still today, 4 YEARS after the sub prime economic crisis.


In April 2011 the United States Senate issued the Levin-Coburn Report. Written by a bi- partisan commission of US senators, including both conservative senators and Tea Party favorites such as Tom Coburn, Rand Paul, and Scott Brown, the report found “that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.


So why don’t we seek out all these conflicts of interest and eliminate them?


One of the challenges of bank regulation in the United States is that the banking industry is regulated by a patchwork of federal agencies and state agencies that are the cumulative result of financial crises dating back to the Civil War. The Federal Reserve, the Federal Deposit Insurance Company (FDIC), the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) all oversee the industry. A parallel state banking system gives bankers more opportunities to influence regulators because they can participate in regulator boards like Mr. Dimon is doing. Just know – he is not the only one. I would say, there are direct (Jamie Dimon) and indirect (Ann Darby) conflicts all over the system.


We all know big banking needs big changes. That change is going to require big changes in  regulators, corporate governance and leadership. The UK took a big step forward by forcing the banks to change when they insisted on the firing of Barclays CEO. It should send a message across the Atlantic but I fear that message won’t resonate here due to many forces protecting the status quo.


Read more about this in BankRUPT – Why Banking is Broken, How it Can be Transformed.

What’s $2B amongst Friends?

Before jumping to discuss the $2B loss by JPMC last week, let’s look at a structural change in banking that contributed to the financial crisis that started in 2008. Many analysts believe that the late-twentieth-century deregulation of the banking industry (repeal of Glass-Steagall) opened a Pandora’s box of new opportunities for mergers and growth that led superbanks away from their core businesses of deposits and lending, and into the murky realm of dubious financial products and risky investments. Glass Steagall was put in place after the 1929 Crash. It forced investment banks (risky businesses) and commercial banks (providing deposit and loan services to consumers and businesses) to be separate companies. Repealing this opened up the door to the current financial situation we see ourselves in today. Our “trusted banks”, in the name of investment banking like profits, are juggling both businesses. As you can see from the $2B loss by JPMC, that juggling didn’t work very well.



JPMC was the super bank that faired the best in the 2008 financial crisis. CEO, Jamie Dimon steered the bank toward avoiding unnecessary risk with the sub-prime debt derivatives unlike many other US superbank’s risker policies.


Yet more recently Jamie and JPMC’s leadership has been rushing for faster growth. According to Bloomberg – “This is Jamie’s new vision for the company…Dimon pushed to invest deposits the bank hasn’t loaned, to seek profit by speculating on higher-yielding assets such as credit derivatives, according to five former executives. Profits surged over the next five years as assets quadrupled to $356 billion”.


The bank can handle the loss of $2B (profits last year were $19 billion). But the bigger issue is public trust and government policies.  Many American’s have lost trust in the large banks due to their role and response to the financial crisis of 2008. This recent JPMC loss reinforces that lack of trust and tarnishes the strong reputation of the one large bank in the US that was thought of by some as conservative and responsible.


And the government response to the high risk behavior of banks and it’s impact has been the Dodd-Frank financial reform law. It was passed in the wake of the financial crisis to reduce risk from these types of high-risk activities.  But the new regulations are not yet in place, and the financial industry has been lobbying tirelessly to water them down.


After the recent JPMC $2B loss announcement, Sen. Carl Levin (D-Mich.) told the press that the bank’s bad bets underscores the importance of the Dodd-Frank Volcker rule. The Volcker Rule is a specific section of the Dodd-Frank Act originally proposed by American economist and former United States Federal Chairman Paul Volcker that restricts United States banks from making certain kinds of risky investments that do not benefit their customers.


It is amazing how so many federal regulations that look so good on paper are rendered quickly obsolete by the realities of a quickly evolving banking marketplace and the endless ingenuity of banking professionals.  The current tension between those who want government to let the financial services industry “police itself” and those who favor strong federal oversight is nothing new; it has been going on since our founding fathers wore powdered wigs.


Yet right now I worry a lot about excessive lobbying. As the government works to make banking safer and better at serving the needs of the average American or small business, how can we be sure the large dollars going into lobbying aren’t watering down the results? According to the New York Times, Wall Street firms spent more than $100 million between January and August of 2011 on lobbying related to Dodd-Frank. Many experts claim that as a result the Volcker rule is so watered down it bears little resemblance to the former Federal Reserve Chairman Paul Volcker’s original proposal.


Who is watching out for our interests? Hard to believe it is our elected officials since they depend heavily on campaign contributions from the banks., Center for Responsible Politics reports the donations of JPMC at  $24,336,481, and Citigroup at $29,433,390 (from 1989-2012) which is pretty evenly split between Democrats and Republican candidates.  ( )

Banks are in crisis for many reasons – and I am optimistic that we can develop solutions to make banking more responsible and better at serving everyday American needs. What I am not optimistic about is our ability to implement those solutions in the current political and business environment.


We’ve asked how consumers feel about big banks, and the answer is that they don’t feel very good about them. For the banks that hold their life savings, mortgages, and checking accounts, their own customers express a high level of mistrust and dissatisfaction. So while the bank is focused on growing profits and personal bonuses through the risky side of the business (investment banking), the everyday American is struggling to get their basic needs met. Are the lobbyist in Washington pushing for laws that help them give consumers better service? or small businesses more help to grow? I don’t think so. And that is a bigger crisis than JPMC’s recent $2B loss. We are insuring and supporting these banks to provide key services to businesses and consumers – we need to make sure they keep their end of the bargin.



49 Fees!

In the United States, banks have dug themselves a large hole with the structure and complexity of fees. And because their traditional revenue models are being legislated out of existence, it will just get worse before it gets better.


The consumers are miffed and thinking  “I’m getting more and more service from companies like Amazon, better products from Apple, but my bank is gaining in complexity and adding fees to more of the things I want to do.”


And the people who are the most price sensitive are hit the hardest by fees. For those consumers who can afford to pay, they are irritated by the complexity of the fees. So even though it may be “noise,” it is irritating noise. Both groups are especially frustrated, given the simultaneous decline in customer service levels.


Today, the Pew Institute reports that a checking account customer may be charged as many as forty-nine different fees. How can anyone anticipate and understand forty-nine different fees? It is too complex. So even if the fees make sense, it is impossible for the average person to remember all the potential fees.


The fees could be reasonable or fair, but the complexity, frequency, and always-evolving fee structure leaves the customer feeling like they are being nickel-and-dimed to death. And users can be informed at fees at different times; when using an ATM you may see one charge at the ATM and yet another charge on your monthly statement. It makes my head spin. I feel like I need a special calculator from outer space to calculate the actual fees I will be charged every month.


Overdraft fees are some of the most painful, since they are more likely to be levied against a tight budget family or individual. In 2011 the average fee was $27.50 for an overdraft but is predicted to increase to $40 or $45 in 2012. In this era of banking by super-computer, it is hard to believe that overdrafts are actually costing the banks more. And all those fees add up; Moebs Services says that bank deposit institutions earned $31.6 billion in overdraft fees in 2011.


According to, monthly fees on some checking accounts can run about $14 a month or almost $170 a year. And even with monthly fees, people can and do experience other fees. Avoiding monthly fees is also getting harder because banks are raising the monthly minimums for no-fee checking.


Banks need to take a time out and rethink the business and pricing model around banking. It is so complex and is a symptom of something fundamentally broken, as we will discuss in future chapters. We must look behind the scenes at banks to understand what is contributing to this increase in complexity, frequency, and increasingly irritating fees.


See the book on Amazon

Why I wrote “BankRUPT – Why Banking is Broken. How it can be Transformed”

With the book coming out next week I decided to blog about how I came to write the book, BANKRUPT Why Banking is Broken. How it can be Transformed.


The book was a decade in the making.


It started when I was traveling in Africa in 2002. I was taking a long needed break from being a technology entrepreneur and was supporting a non-profit working in central Africa.


It was my first time visiting a place where the infrastructure was severely lacking; transportation, roads, electricity, water, and health care – nothing worked. Yet even in 2002, many people had cell phones. That is the first time I imaged a world where everyone would have access to mobile phones. And since I had just finished building a technology company, I started to think about what else besides basic communications could be done with all these cell phones.


That is when I realized in my lifetime it might be possible for everyone to have access to banking through his or her mobile phone. For people with limited or no access, this would be transformational. For the rest of us, it would just mean more convenience – and potentially lower cost banking.


So then in 2005 I went back to technology to build a mobile banking company. I was involved in launching next generation banking solutions in Africa, India, and even in the US. At the same time, I saw how slowly traditional banks were embracing  new models of banking, especially in the US. In fact with the recent financial crisis, things slowed down even more.  Sure we have new mobile interfaces from the banks – but the products are the same behind the scenes. If anything banking got worse with people having underwater mortgages and increased everyday bank fees.


During the last 5 years, I saw first hand the struggles within the banks to support innovation.  I have been in countless meetings with bankers all over the world. One thing I have heard over and over again is that when they let their hair down, the universal comment emerges: “We don’t know how to make money from small depositors.” In addition, it was clear there was too much emphasis being put on protecting traditional revenue streams, not enough of disruptive innovation. Even when innovation received initial support, it was frequently bogged down with business constraints and internal organizational struggles.



So when I retired from my moible banking company in 2011,  I felt unsettled about what was happening with banking, especially in the US. There is a lot of industry hype, but a alarming number of underserved and unhappy consumers.  The big banks have especially lost their commitment to serving everyday people by providing affordable banking services that empower people’s life and work.  In the US the number of Americans opting out of traditional banking is reaching new heights; 106 million Americans are cash preferred.


I wrote a book about what I thought needed to happen – especially given the financial crisis. Crisis’ forces change – which is painful, but it can also be good. I want so much to inject a sense of urgency and a big vision for the banks as banks recover from the crisis; a vision of affordable banking for all and a reorientation of the banks to delighting their customers. This is a moment in time similar to the moment when Steve Jobs returned to Apple – a time of crisis that he turned into an effort to build a great foundation for the future.


That opportunity is there for the banks. What is at stake is banking for all, global competitiveness in banking, and customer loyalty. For banks to do this, they have to have a culture of Steve Jobs-like innovation within the banking industry. Being about the customer must be in the very fabric of the banks. Banks can follow the example of Steve Jobs, who turned around a failing Apple by relentlessly focusing his company on building great products that customers love, and backing them with unsurpassed customer service. Banks have to be about being great at serving the needs of the consumers and business.


The BankRUPT book is appropriate for customers of the banks and for banking industry insiders. The book will demystify the crisis, provide a bigger definition of banking that serves more people, and give new insights and ideas for a path forward. My desire is for the bank employee or executive reader to wake up their latent passion to serve the everyday customers. For the rest of us, it will give us needed insights so we can be better equipped consumers of banking services. For all of us, it will give us some specific ideas on what disruptive innovation is possible.


And that is why I wrote the book. I am looking forward to the book release next week – and especially excited about reader comments. I look forward to the dialogue.


See the book on Amazon

Foreclosures and the lost soul of the American Banks

On January 9, 2009, the Senate Congressional Oversight Panel, which was created to oversee TARP, confirmed the suspicion held by consumers that TARP funds were not “trickling down” to the retail lending market. The panel stated, “In particular, the Panel sees no evidence that the US Treasury has used TARP funds to support the housing market by avoiding preventable foreclosures.” The panel also stated, “Although half the money has not yet been received by the banks, hundreds of billions of dollars have been injected into the marketplace with no demonstrable effects on lending.”


Throughout the financial crisis, the recurring theme is that Wall Street saves itself while Main Street is left to wither. There is tremendous popular resentment that the recovery money helped save the big banks, but the banks did not turn around and work very hard to help the average person who was faced with losing their home. Anyone trying to restructure a loan that was underwater experienced this first hand. If they were successful it was not because the banks were helpful, it was because they were able to complete it despite the complexity and push back from the banks. This only made the average American distrust the banks more.


Realty Trac, a company that tracks foreclosure activity, announced in January 16, 2012 that more than 5 million Americans were now two months or more behind on their mortgage payments, setting the stage for a record high foreclosure rate this year. One million homes were repossessed by mortgage lenders in 2010, and  2011 is projected to be 1.2 million foreclosures.


On April 6, 2012, a federal judge approved the $26 billion settlement deal reached between the nation’s five largest mortgage providers; Bank of America, Citibank,  JPMorgan Chase, Wells Fargo, and Ally Financial (the former GMAC).


Banks will compensate some homeowners who were impacted by the robo-signing scandal, in which bank employees signed hundreds of documents a day. The banks committed at least $17 billion toward modifying mortgages for delinquent borrowers. $3.7 billion will go toward refinancing mortgages for borrowers who are current on their payments. This is supposed to help some 750,000 borrowers take advantage of low interest rates. For the people who have already lost their homes to foreclosure, there are payments of $1,500 to $2,000. This is expected to cost the banks $1.5B.


$5 billion in fines will be paid to the states and the federal government. Other funds will be paid to legal aid and homeowner advocacy organizations that help individuals facing foreclosure or experiencing servicer abuses.


But the beneficiaries are only the borrowers that have mortgages held by the 5 major lenders. Fannie Mae, Freddie Mac, Federal Housing Administration loans are not included in this settlement. Also the principal-reduction provisions apply only to delinquent borrowers is also a sore point for many borrowers. So the people who have been struggling but kept up with their payments despite the situation, will not receive a principle reduction even if their loan is underwater.


Banks need to seriously consider supersizing this program. There are so many struggling hardworking Americans that need help. Although the government is forcing this program through a settlement, the banks could do more. Banks have lost so much good will with customers during the crisis. 2011 Gallup survey indicated that only 25% of Americans trust the integrity of bankers. Now the government is forcing them to do the right thing instead of their past practices of robo-signing. Bank CEO’s should be like Steve Jobs when he went back to Apple. Win back the customer’s through doing the right thing. Without customer’s trust, banks will never be great again.


Read more about foreclosures and what can be done in BankRUPT – Why Banking is Broken, How it can be Transformed.


See this on Amazon

Banks – A Broken Trust

Starting in late 2007, the most severe financial crisis most Americans under the age of eighty have ever experienced swept over the United States. A primary cause of the meltdown was the subprime lending bubble. After growing for much of the first decade of this century, in 2007 the bubble collapsed. Real estate prices plummeted, loans defaulted, and foreclosures skyrocketed.


The “Subprime 25” were responsible for nearly a trillion dollars of subprime lending, or seventy-two percent of all reported high interest loans.  These were largely non-bank retail lenders, most of which were either owned outright by the biggest banks or former investment houses, or had their subprime lending financed by those institutions. Between 2000 and 2007 underwriters poured $2.1 trillion into subprime mortgage-backed securities.


This was a period of the most reckless mortgage lending in American history, in which traditional income documentation and loan standards were ignored and regulators were absent. Housing prices were rising at a breathtaking rate, and to the high rolling Wall Street investor-gamblers, real estate was a goose laying not just one golden egg, but dozens, day after day


And if that weren’t enough motivation for greed, subprime investors had additional confidence because their bets were covered. The big banks bought insurance against losses – those infamous “credit default swaps.” The swaps were unregulated, and companies peddling them, like American International Group, didn’t have to maintain reserves to protect against unforeseen losses.


It was all a house of cards, and sure enough it all tumbled down.


In April 2011 the United States Senate issued the Levin-Coburn Report. Written by a bi-partisan commission of US senators, the report found “that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.”


How does the typical person feel? They feel betrayed by the big banks. Banks are built on trust, and the trust is broken. We trusted them to be stable, keep money safe, help people with safety and security, and be a foundation for our economy. Their near collapse and subsequent taxpayer bailout damaged trust, and this will take a long time to repair. We no longer trust them to keep our money safe; instead we now expect them to be thinking more about their own personal and company bottom lines than their commitment to us as customers. So they are really all about greed.


What bankers need to understand is that the average person thinks the bank doesn’t care about their wealth creation or even protecting their customer’s money. The average person, as a customer of a bank, is not important. What is important is the wealth creation of the bankers – especially the senior ones. Bankers are greedy and they are in business to make themselves rich, not serve their customers.


The political rhetoric or even the expensive polished prime time commercials won’t change what most American’s feel in their gut – the banks failed us. The bailout was critical because the banks were going to fail. So the highly paid bankers not only contributed to the economic crisis, they put their own institutions at risk, and therefore put our money in their banks at risk. No amount of spin will change that feeling. Like General Motors did, the big banks are better off accepting the broken trust and working to rebuild it. Explaining fine distinctions around contributing factors, posturing as the good guys in the crisis, differentiating investment banking from retail banking may help bankers sleep better at night but it makes no difference to their customers.


BankRUPT is now on Amazon



What my teacher taught me in grammar school about Banks

When I was in grammar school our teacher gave each student a small envelope, and we were told to save our pennies and put them in the envelope. On the appointed day we were to bring the coin-laden envelope to school so the banker could come get it and take it to the bank.  My teacher explained banking to us. Our money, along with the grown ups money, would help the bank make loans to businesses and families. She told us it was a fair deal: the bank kept our pennies safe, and in exchange they used those pennies to help build the community.


I was proud to save my money at the bank and from a very early age trusted that the bank was there to support my life. Fifty years later, the world has changed in many ways, but people still need their local bank to be there to help keep their money safe, save for education, build a future for their families, support their communities, and provide services to small businesses.


Yet many people today aren’t sure the bank will support their lives. Today, the Pew Institute reports that a checking account customer may be charged as many as forty-nine different fees.  How can anyone anticipate and understand forty-nine different fees. It is too complex. So even if the fees make sense, it is impossible for the average person to remember all the potential fees.


And the mortgage crisis is adding to our frustration with banks. Realty Trac, a company that tracks foreclosure activity, announced in January 16, 2012 that more than 5 million Americans were now two months or more behind on their mortgage payments, setting the stage for a record high foreclosure rate this year. One million homes were repossessed by mortgage lenders in 2010,  and  2011 is projected to be 1.2 million foreclosures.


So although there have never been more banks ATMs, mobile applications, and internet banking sites,  people young and old feel disillusioned about their bank. The confidence and support I once felt bringing my envelop full of pennies to class has been replaced by frustration.


The bank hides behind pages of fine print. They sell credit cards that charge breathtaking interest rates. They advertise that they are friendly and community-spirited, yet the average person cannot get a mortgage and the small businessperson cannot get a loan.


So I decided to write a book about all this (BANKRUPT, Why Banking is Broken. How it can be Transformed).  It is not about creating nostalgia for some imagined golden age. Change is a necessary part of life. But consumers have a right to expect and demand transparency, fairness, and real competition in the banking industry. They have a right to expect that advances in technology that benefit the banks will also benefit the consumer.


There is a crisis the banks are facing – the business model that worked fifty years ago does not work now.  Bankers need to reinvent themselves and their industry. They need leadership like that provided by Steve Jobs who went back to Apple when it was close to bankruptcy and insisted that for Apple to be great again they would have to build great products that customers love.


Part of the motivation for writing BANKRUPT, is seeing first hand the innovation happening globally around mobile banking. In unexpected places we are seeing banking innovation that could be applicable to our problems. But what the casual observer may not understand is that the change in banking is not just the interface being mobile; everything is changing behind the scenes as well. The banking crisis we are experiencing is an opportunity to look forward to a very different kind of future for banking. We should embrace that opportunity and reinvent banking.

Implementing India – What about Financial Inclusion.

Reprint of Blog from India Economic Forum Winter 2010 by Carol Realini

My first trip to India was three years ago, now when I fly into Mumbai I feel like I am coming home. Although each time I come here there are so many changes. It is all happening quickly – physical infrastructure improvements like the new metros in Delhi and Bengaluru, government initiatives like ADHAAR  (universal biometric identity) and NPCI (faster retail payments), rapid business growth like the mobile subscriber base growing from 150 million on my first trip three years ago  to 670.6 million last count. All creating the environment to make big strides forward with financial inclusion.

For me, this India Economic Forum is all about engaging more deeply with leaders to discuss how we work together to make financial inclusion progress quickly. The opportunity is clear but so are the challenges. 41% percent of India’s population does not have bank accounts. Data gathered in April 2009 showed 46% of mobile phone owners did not have a bank account. (I expect that % is increasing since mobile growth in rural India has been significant in the last 18 months.)

Mobile financial services will bring banking to those who have been chronically underserved. The reason is simple – it lowers cost and increases distribution. When it scales it is transformational. I have seen it in Kenya where we operate with an India owned mobile carrier – YU (owned by Essar). My hope is to see the same thing happen in India in the next three years. So by 2014 – every person with a mobile phone in India has full access to affordable financial services that empower their life and work and participate in the rapid economic growth (over 8% for 2010) that India is experiencing. Mobile carriers are faced with a challenge – steady decline in ARPU from over Rs 300 per month in 2006 to less than Rs 120 per month in 2010 and therefore need to find additional sources of service revenue by leveraging their consumer reach.  Banks on the other hand need to extend their reach and need a stimulus to enable them to profitably serve the unbanked and face the challenge of high cost of customer acquisition and insufficient rural coverage. In order to achieve total financial inclusion these two distinct worlds need to provide their strengths to each other.

I know many India Economic Forum attendees share my hope for financial inclusion. So to realize the potential here, we need to work together; mobile companies, financial service companies, innovators, non profits, regulators and government must work together. The World Economic Forum has a long track record for forging alliances to tackle big global challenges. Important discussion topics are:

  • What  business models will allow high levels of service, encourage innovation, and create scale.
  • What applications are most important to ignite the market and create critical mass of users (government disbursements, business collections, and money transfer)?


  • How do we ensure we reach and serve those who need it most?

I will blog during the program and also you can follow me on Twitter – carolrealini

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