Anthropological insights into banking behaviour

This is a fairly interesting article. A little simplistic (but the author does admit to that), but worth a read. Apologies if this has been posted elsewhere on the site.
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Two decades ago, before I became a journalist, I used to work as a social anthropologist in the Himalayas. It is undoubtedly an unusual background for a financial journalist.
Indeed, whenever I reveal my strange past today, bankers usually either react with horror (what does she know about finance?) or incredulity (why would anyone spend years studying Tajik goat-herders?)
But a decade later, my years in Tajikistan are suddenly starting to look a whole lot more useful. For one thing that anthropology imparts is a healthy respect for the importance of micro-level incentives and political structures. And right now these issues are becoming critically important for Wall Street and the City, as the credit crunch deepens by the day.
Take the matter of risk and remuneration at banks. As my colleague, Martin Wolf, pointed out this week, one reason for the recent excesses of the credit bubble lies in how bankers are paid. For the emphasis on annual bonuses creates crazy incentives for bankers to gamble with client money – particularly since they don’t pay back these bonuses if deals later sour.
However, what is equally interesting is while this bonus system is endemic, it has not produced identical outcomes at the banks. Some (such as JPMorgan and Deutsche) appeared to have ducked the worst of the credit pain, while others (Goldman Sachs) have thrived. However, banks such as Citi, UBS and Merrill are producing mind-boggling losses.
Why? Luck, undoubtedly, plays a part. But I suspect at least three other factors might also shed light on the puzzle.
One is obvious: namely the character of those running banks. In recent years, it has been fashionable in management circles to encourage leaders to delegate. This is a principle Chuck Prince, former head of Citi, for example, appears to have practised (perhaps because there was no alternative, given Citi’s gargantuan size). So, famously, did James Cayne at Bear Stearns.
But one trait most surviving bank leaders share, as one policymaker recently observed to me, is that “they tend to be meddlers – very hands on”. Moreover, many also have another key feature: they have had direct career experience of trading and managing market risk. This has given them an obvious advantage in navigating the credit cycle, since they presumably know what a derivative is.
Furthermore, men such as Lloyd Blankfein at Goldman Sachs or Anshu Jain at Deutsche, who have risen through trading desks, instinctively tend to view everything in terms of probabilities and risk. That is a different mindset from somebody who has previously worked as a salesman, adviser – or lawyer, such as Mr Prince.
However, there is a third issue which may be even more important – the culture of power. As far an outsider can tell, Goldman Sachs appears to have retained many of the cultural features of its previous partnership. Employees typically view themselves as being affiliated to the bank, not business line, and there is a strong ethos of shared accountability. As a result, senior Goldman staff appear able to scrutinise the operations of other business units with more freedom than at other banks.
However, groups such as Citi or Merrill appear to have developed a more hierarchical pattern, in which the different business lines have existed like warring tribes, answerable only to the chief. Moreover, the most profitable tribe has invariably wielded the most power – and thus was untouchable and inscrutable to everyone else. Hence the fact that, in this tribal culture, nobody reined in the excesses of the structured finance teams at Citi and Merrill.
Now, I fully expect that my e-mail box will become full of e-mails from bankers, complaining this three-point account is a gross simplification. No doubt. But what is crystal clear is that if you want to understand which banks will emerge as winners from the current mess, it is no longer enough to look at their computer systems and balance sheets. Now, more than ever, investors need to understand a bank’s culture too – and the degree to which it is tribal. As I said, a training in Tajik anthropology is suddenly looking very useful.