Downward Spiral: There's a simple reason why bankers take on too much risk even when their actions come back to bite them, according to consultant J.V. Rizzi: natural self-interest. Rizzi argues that easing credit standards in pursuit of profits is a rational choice right up until the bottom falls out from the market. Regulators should accept this reality and develop strategies for containing the fallout from inevitable crises, he says. The column prompted a spirited debate among readers, some of whom argued that a broad shift toward easier credit could be a good thing. "As more banks lower their credit standards, that risk gets distributed," writes "lsphila76." Commenter "masaccio" pointed out that it's safe enough to loosen underwriting standards if requirements were too strict to begin with; it's only dangerous if "the new normal for borrowers is poor pay, few assets and massive needs for borrowing." Another reader argued that with the right policies in place, investors can provide market discipline: "Improve the sensitivity of this side of the bank ledger, and you improve the incentives for more prudent underwriting by bank loan officers."
Banking's Makeover Moment: "Cool" is hardly the first word to spring to mind when most people think of banks. But financial markets guru Chris Skinner thinks it's possible to create a financial institution that's both hip to the digital times and fair to its customers. The bank would win customers' loyalty by securing their privacy while wooing them with rewards programs and relating to them on a human level, he writes. Skinner has even come up with a memorable motto for his ideal institution: "don't screw the customer."
Also on the blog: The financial crisis reshaped Americans' spending habits, writes MasterCard's Theodore Iacobuzio. He says that while people remain interested in shopping, dining out and travel, they now approach debt with cautionwhich means that credit card issuers may have to consider new ways to fuel sustainable growth.
A new study casts doubt on the idea that reckless lending fueled the housing crisis, according to National Mortgage News editor-at-large Mark Fogarty. Mortgage denial rates in 2013 were comparable to the denial rates of 2004, according to an analysis of Home Mortgage Disclosure Act data. The study also found continued disparities in mortgage lending across racial groups.
Banks can adapt to competition from tech startups if they take a cue from It's a Wonderful Life's George Bailey and keep their focus on relationships and communities, according to former Citigroup executive Hamid Biglari. Columnist Dave Martin also mounted a defense of the physical realm, noting that branches give banks an opportunity to set themselves apart from the competition.
Before banks tie the knot with a promising startup, they may want to draw up a prenup, according to Richard Magrann-Wells of Willis Financial Institutions Group.
Susan Palm weighs in on the biggest risk management lessons of 2014. She also makes a few predictions about how banks' risk practices will evolve in the year ahead, with board shake-ups and increased vendor oversight topping her list.