Whether bankers accept or not, there are two banks in every commercial
bank. There is the paper bank and there are is real bank. The paper bank is
the bank shareholders and regulators see.
The real bank is the bank depositors and borrowers see. Are they different? Yes indeed. Is the difference big? Very big indeed.
In the real bank, a branch is a branch. You can't be talking about
Oxford branch but you meant Beverly branch. In the paper bank, when you are talking about
a performing loan, you could be talking about a doubtful loan that may never be
recovered.
In a real bank, if you are talking about James Smith, the Head of
Customer Services; you can't be talking about Aziz Ali, the Manager Branch
Operations. In the paper bank when you talk about a $1M current asset you could
be talking about a $0.5M current asset due to overstating of the current asset.
In a real bank, if the salary of George is $10,000, you can't be talking
about $8,000. In a paper bank, when you
talk about an investment in a sister company, you could be talking about an
injection of funds that may never be recovered since the sister company is in
serious trouble.
In a real bank, if the number of employees is 2000, you can't be talking
about 1700 employees. In a paper bank, if you are talking about fixed assets of
$20M, you could be talking about a fixed asset of $16M because the fixed asset
has been overvalued.
In a real bank if you are taking having 341 branches, you can't be talking
about 274 branches. In a paper bank, if you are talking about an investment of
$70M, you could be talking about an investment of $35M since the investment may
have lost 50% of its value.
One free ride the banks have been taking for a long time is the
ability to accept more deposits and lend more money if the bank increases its
capital. As if capital is the magic that will take the bank to the skies. The ability to accept more deposits and lend
more money is not just a function of capital. There is the equally important
variable, which has been ignore by regulators, the human capital.
It is time that a bank's ability to take more deposits and lend
more money to be linked to increase in both the financial capital and human
capital, not just the financial capital.
Hamad S Alomar
Riyadh
