Saturday, January 19, 2013

The First Bank of James

After listening to economics podcasts for the last couple of years, and recent poor customer experiences at several banks, I've decided to open my own Canadian bank.

Well, not really because I'm sure the cost due to red tape would dissuade all but the deepest pockets, and a bunch of my ideas are currently forbidden. I was mostly inspired by one about free banking in Scotland between 1716 and 1845. Free, as in, no regulation and no government to bail you out. So, my fantasy bank would:
  • Not trade its stock publicly, unless additional conditions could be placed upon the board beyond maximizing shareholder value (I don't know if this is possible under Canadian law). Such conditions would include not buying or selling any securities outside stocks and bonds, and being able to say no to investments that don't fit our social conscience. And no selling of the bank to another bank in part or whole.
  • Require all board members and insiders to hold at least 75% of each of their deposit (e.g chequing, savings), credit and investment values in the bank.
  • Opt out of the Canadian Deposit Insurance Commission (is this possible?). If the bank fails, people may lose money, including board members. We will be motivated to not lose our and your money because there will be no backup plan. (CIDC guarantees that if a bank fails every deposit account will be paid out up to $100000. Want us risking the whole bank knowing customers will be bailed out?)
  • Offer only index mutual funds. Canadian index, US index, international index, a couple of bond index funds, maybe a gold one. No one can beat the market consistently, so no one in my bank will try.
  • Sell only our mutual funds through fee-only financial planners. That is, you'll pay our people a one time, hourly fee for financial advice. The reason you don't pay the planner at your current bank anything to set you up in mutual funds is because he or she gets paid by the funds your buy themselves. Also known as commission sales. This means that the cost of running the mutual finds will be greatly reduced. Those commission sales are paid for by the x% taken out of funds every year. Canada has the highest average fees of all industrial countries.
  • Not be a member of the Mutual Fund Dealers Association (MFDA) (not possible under current laws). We'd go to real lengths to build you a portfolio appropriate to your needs and risk tolerance without being able to hide behind the protections of this group. No doing the MFDA minimum needed to survive a court case, because we'd be vulnerable to all legal action. This would also make buying mutual funds as easy as any internet purchase because we wouldn't be beholden to the MFDA's documentation rules. You'd need to jump through our hoops, which would align with your actual needs, but these would not involve filling out pages of generic forms. You
  • Not be regulated by the provincial securities exchanges. Completely impossible, I know, but it would also make buying stocks, bonds and mutual funds as easy as a couch. Far less paperwork. The bank would be forced to perform its own due diligence on transactions, rather than the minimum requirements currently needed.
  • Keep the external technological systems up to date in terms of technology and features. Phone apps, third party integration, a slick web interface, analysis tools inspired by the latest financial sites will all be standard. A modern look and feel replicated across the whole site, not just the "marketing", or non-personalized, site. We know you you are - no need to fill in blank paper forms. No PDFs allowed. No emails saying "if you are registered for web banking... if you have an investment account..." because we know whether you are/do or not. The goal is to gather any given bit of info once and only once.
  • Maintain one, and only one, copy of your personal information, guarded by the leading edge in encryption, processes, ninjas, balrogs, whatever it takes. No physical copies allowed that could wander into the wilderness, like tapes. Backups would be handled over the internet, encrypted at the source. Business continuity would be a priority because of point 2 above.
  • Be very conservative in its lending. Mortgages would require the traditional minimum 20% down. No Canadian Mortgage and Housing Commission (CMHC) insurance allowed for high ratio mortgages. Other lending would require very solid documentation and low risk levels. The board is risking most of its money on your loan, so will allow only the most solid investments.
  • Not have call centers. You'd talk to people at the local branch on the phone who know you and your significant other and kids. This would be partly for the personal touch and a security measure.
  • Structure all technological and business systems around the customer. No isolated stovepipe departments to make internal interactions harder.
One can dream.

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