“Those who cannot remember the past are condemned to repeat it”
(This is the start of a series first published in July and August 2014)
Hello Readers, I can see how time really flies. Recently I decided to pause and reflect over all the articles in THE RISK WATCH series that I have published since October 2013. I am also very grateful for the responses and feedback received from you. I am honoured that it has proven useful to some of you in your risk management.
As usual, all the topics I have treated are nothing new. A cursory look at some of the topics are:
- Not all that glitters is gold
- The risk of multi-tasking at the front desk…a beginner’s story.
- Getting back to basics…Managing risks in the banker-customer relationship
- Bankers and Customers…Know your rights and responsibilities
- The banker’s duty of secrecy…Is it Absolute?
- Bankers…where do you keep your records?
- The twenty-first century bank teller
- The betrayal of trust…The “people risk” in financial institutions.
- Prevention of internal fraud through effective induction programs.
- Customers, Don’t become victims of cheque fraud.
- Segregation of duty in cash management.
- Segregation of duty in lending.
- Segregation of duty in account opening.
- Segregation of duty in branch operations.
As some people put it, “there is nothing new under the sun”. Most of these risk issues are clearly embedded in most banks’ operational manuals, circulars, policies, etc. I can go on and on. However, since financial institutions are indeed human institutions, we shall continue to write about the risk issues. One eye opener, however is, for so long as we remain human, any activity that occurs in life bears some element of risk, and if we do not learn from the past, HISTORY WILL REPEAT ITSELF!
What is History?
According to Wikipedia, “History (from Greek word historia, meaning “inquiry, knowledge acquired by investigation”) is the study of the past, specifically how it relates to humans. It is an umbrella term that relates to past events as well as the memory, discovery, collection, organization, presentation, and interpretation of information about these events.
History can also refer to the academic discipline which uses a narrative to examine and analyse a sequence of past events, and objectively determine the patterns of cause and effect that determine them. Historians sometimes debate the nature of history and its usefulness by discussing the study of the discipline as an end in itself and as a way of providing “perspective” on the problems of the present.”
As a student in secondary school, my worst subject was history. I thought it was boring and not relevant to the present world. I used to ask myself… “What am I going to do with all the archaic information about people and events? Does it concern me? What relevance has it got with my future ambition?
”My best subject was Geography, and that is how I found myself becoming the only lady in the Geography Faculty in the university for two years! Surprisingly I realized that Geography indeed contains a lot of HISTORY! I could run, but I couldn’t hide from History. That is the time I started appreciating history and saw how wrong I was. Sociology, my other subject also contained a lot of historical information which broadened my minds into how people from various societies behave.
“Once upon a time” says the teacher, parent, old lady or whoever it was that wants to tell a story. The answer obviously was a chorus from the children…”Time, time.” Children always stared at the story teller in awe, with wide eyes and pupils “fully dilated”, necks cocked up like cockerels, mouth opened, eager to absorb every word.
Can you imagine that I use this method sometimes in my training sessions? It is not only to create humour, but to emphasize the fact that many risk events are nothing new, therefore one still needs to learn from the past. Do you remember the popular television series, “By the Fireside?” Many kids in those days never missed it. Indeed the end result was to use the story to educate and guide innocent children about life using events of the past.
I am sure you will be wondering why I seem to be rambling about history, story-telling and what have you. Please pardon me, I want to make a strong point. If history is not recorded, told, assimilated, and lessons learnt from it, it will always repeat itself. Now, back to banking.
As stated in the definition of history, a discussion of the study of banking can be an end in itself and also a way of providing perspective on the problems of the present. In the same vein, we shall use the next few weeks to examine the evolution of banking over the past centuries in Europe and America, the various banking crises, bank runs and the recent financial crises and bank scandals and we shall definitely see how banks continue to repeat the same old mistakes and history repeats itself.
THE IMPORTANCE OF BANKING
Banking has changed in many ways through the years. Banks today offer a wider range of products and services than ever before, and deliver them faster and more efficiently. But banking’s central function remains as it has always been.
Banks put a community’s surplus funds (deposits and investments) to work by lending to people to buy homes and cars, to start and expand businesses, to put their children through college, and for countless other purposes. Banks are vital to the health of our nation’s economy.
THE HISTORY OF BANKING
The history of banking begins with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities. This began around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders based in temples made loans and added two important innovations: they accepted deposits and changed money.
History of U.S. Banking
Source: The Office of the Comptroller of the Currency
“The First Banks: 1791 to 1832
In most states of the early federal union, bank organizers needed special permission from the state government to open and operate. For a while, an additional layer of oversight was provided by the Bank of the United States, a central bank founded in 1791. A second Bank of the United States was created in 1816 and operated until 1832.
In those days, city bankers tended to be extremely cautious about to whom they lent and for how long. To make sure they had enough cash available to meet unexpected demands from depositors, bankers generally made short-term loans only. Thirty to sixty days was the norm. Typically manufacturers and shopkeepers would use these funds to pay their suppliers and workers until they could sell the goods to customers. After that sale they would pay off the bank loan.”
Dear Readers, don’t you find it interesting how the banking system built in their risk management systems even in those days? Watch out for the remaining series.
To be continued
ABOUT THE AUTHOR
Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of Three books: “The 21st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story” and “The Modern Branch Manager’s Companion”. She uses her experience and practical case studies, training young bankers in operational risk management, sales, customer service, banking operations and fraud.