Two different approaches

There are two completely different approaches to commercial banking.

In the one that has been in vogue over the last decades you look at a monitor, check the credit ratings and invest where the spread is the largest, and then you key in your approval code. This approach allows you, supposedly, to manage the bank from a faraway distance.

The other system, the more traditional one, is based on looking into the eyes of your clients and to get to know them and their business intimately and then to shake their hands when you approve the loan. This approach has the added benefit of developing bankers.

I hold that the traditional approach, call it community banking, is immensely better for developing and middle income countries… that was in fact also the approach the developed countries used.

I hold that the traditional approach, call it community banking, has a better chance of helping to develop the growth that could generate jobs than to finance the anticipation of consumption at the cost of high interest rates and that only generates impoverishment.

I hold that the traditional approach, call it community banking, has a better chance of helping to develop the growth that could generate jobs instead of financing the anticipation of consumption at very high interest rates and that only generates impoverishment.

62.5 times leverage?

I wonder what many of those out there discussing so pompously the financial crisis would be saying if they only knew such basic facts that the Basel Committee in their minimum capital requirements for the banks have actually authorized a bank to leverage its equity 62.5 times if it lends to clients perceived by the human and fallible credit rating agencies as AAA to AA-.

These so knowledgeable discussants would do well picking up some basic knowledge here: http://www.bis.org/publ/bcbs128.htm