Skills for banking
Banks are normally large multinational organisations and, excepting retail banking, suit candidates who thrive in a very dynamic, competitive and at times aggressive environment. Again with the exception of retail, the financial rewards are high, the hours long and the commitment total if you wish to be successful.
An organization can embrace all the disparate activities I have described and hence the dominance these multinationals can exert on a country's economy. The global financial crisis has encouraged governments to separate the retail component from the investment activity, which is seen as more risky and speculative and could impinge on the security of clients' funds and the organization's structural stability.
The 2008 banking crises created a new focus in terms of altering mindsets. The immediate aftermath has seen a climate of risk aversion and a protective 'wait and see' attitude prevails. In this scenario there is a greater emphasis on analysis and interpretation. The speculator's bars will have been greatly lowered and the run for big returns on risky trades will be temporarily shelved. And this is an interesting phenomenon from the personality and skills requirement. In the halcyon buoyant days we need the Influencer to make those creative deals which generate strong returns, but in times of frugality we need the Analyst to protectively sit on the 'nest egg'.
Banking regulation is difficult to impose and monitor. Banking is a very complex industry with highly complicated trading platforms with speculative structures.
The recent banking crisis has created a plethora of causes. I would suggest that the result of the softening of capital ratios and the surge of extra funds to 'play with' created an environment for candidates with a risky sales attitude with the inevitable consequences. Previously banking attracted the Supporter and Analytical complimentary types due to the constant need to balance the risk component against the gain and loss factor.
The Basel II Accord – which is a global regulatory standard on a bank's capital requirements – will affect their liquidity and leverage criteria. Basel II will now require banks to hold 4.5% of common equity and 6% of their capital, up from the respective 2% and 4%.
As markets improve caution will be reinterpreted and capital will be released to work hard again on speculative deals. Fitting personality types to banking is therefore determined by the condition of the market, but if I were to give a definitive steer regarding career choice I would say:
Supporter for retail banking.
Supporter and Analyst for back office within investment banking.
Analyst for middle office within investment banking.
Analyst and Influencer for front office within investment banking.
Banking offers scope for a wide range of graduates with degrees in accounting, economics, physics and IT. Research is becoming more and more critical and PhD graduates with quantitative analysis experience are in demand. These roles will suit the Analyst profile.
Highly commercial activities such as trading will fit the Influencer working style and there is always a need for the Supporter profile within banking as a secondary or dominant trait to keep the focus on customer service. The role of the Creative can be applied to the design of banking branches, websites, materials and the determination and implementation of marketing strategy.
This is a vast market to describe or discuss. The segments are so disparate and can be so non-relational that they could be considered on a standalone basis. You may be employed as a local manager of a retail bank or as a derivatives trader in financial instruments such as options, futures and swaps and I would find it very difficult to establish any synergy between the two activities in terms of skills, knowledge or dynamics. What I can do is firstly describe the main segments of this worldwide activity and then refer to the dominant skills requirements.
Banking is exclusively about using money to make more money through trading vehicles. You may buy for example gold, oil or wheat at a price, and hope to sell it (commodity trading) at a higher price. Bankers are creative and they are constantly developing new ways to make a profit. We have therefore had a growth in terminology much of which is only really understood by the employee active in that particular specialism. Subprime is a good example. This was seen as a major contributor to triggering a banking crisis and yet the public might think that if it was that important and critical to my financial well being, why did I not know about it?
But equally you might not still be familiar with amortisation schedules, equity derivatives, futures, options, swaps, hedging, over-the-counter trading, puts, calls, leveraging, arbitrage, notional, toxic, strike price, structured products, out of the money, at the money, open market, vanilla options, exotic options, naked call and covered call. The list is extensive and relational to very specific financial activities.
Similar to the banking terminology the range of banks and their functions is equally disparate and I shall briefly describe a selected number.
This is the most widely known and is the high street bank. It holds current and savings accounts, has a Forex department, administers loans, mortgages, debit cards, credit cards and facilitates the normal daily operational needs of businesses and private clients within its locality.
This deals with securities on behalf of their clients. You may be familiar with the term front, back and middle office.
Front office will help clients raise funds in capital markets and advise on mergers and acquisitions. Market making will be an important part of their activity which will be backed by a research division which in turn will create reports outlining buy or sell ratings.
The middle office assesses exposure in terms of risk management. It will set limits on capital and incorporate the corporate treasury and financial control functions. Compliance is an important remit of the middle office.
The back office is the engine room which executes all the appropriate administration generated by the front office. Transactions are becoming sophisticated in terms of timescales and choices and execution has become more and more technology dependent. Human intervention will be downgraded and therefore trading expertise will be attributed to the software and not human skills. It would take a brave trader to effect a significant trade when all the graphs are pointing in the opposite direction.
Central banks are the country's main bank and are usually independent of political interference. They are the boss so to speak and set the parameters for monetary policy incorporating capital, reserve and exchange requirements. Their highest profile will be influencing market interest rates and their governance will vary from country to country.
Managing the country's foreign exchange and gold reserves is also a primary function. The value of one currency against another will greatly influence the competitiveness of imports and exports.
There are banks which cater for more specific needs and niche markets such as offshore banks, private banks and community development banks.