In memory of Robert Holzach, who died seven years ago, finews.first publishes an essay on the vulnerability of the banking system penned by the great Swiss banker. The text, first published in 1982, retained its validity a quarter of a century later.
finews.first is a forum for renowned authors specialized on economic and financial topics. The texts will be published both in German and English. The contributions appear in cooperation with Pictet, the Geneva-based private bank. The publishers of finews.ch are responsible for the selection. Previous contributions: Rudi Bogni, Adriano B. Lucatelli, Peter Kurer, Oliver Berger, Rolf Banz, Dieter Ruloff, Samuel Gerber, Werner Vogt, Claude Baumann, Walter Wittmann, Albert Steck, Alfred Mettler and Peter Hody.
A banker is acting in a sphere of calculated risk. His business and the system of which he is a part are inherently vulnerable. Total immunity is impossible in theory and even more so in practice. And neither would it be desirable: «A banker who tries to avoid all risks, has soon no risks to avoid.»
This isn't a proclamation of faith to «business at all cost». A banker has to be able to say no. Or as Germany's elder statesman, Josef Hermann Abs, recently put it: «As long as the banks retain the right to refuse requests for loans and as long as they are able to say no, I don't see an untenable risk.»
«The question is how you attain the goal of reduced vulnerability.»
The question therefore is how you attain the goal of reduced vulnerability. In doing so, I need to presuppose two axioms. First, the bank has to generate adequate profits to pay interest on the risk capital at work at the bank. Second, the bank needs to be capable of accumulating sufficient reserves in a constant adaptation to the existing risks.
The question remains to be answered, how the management reaches the goal of minimal vulnerability. Even though our generation seems to assume that vulnerability can be kept under control with the help of a set of mathematical formulas, history and daily experience suggest the opposite.
«A formal adherence to rules alone won't prevent a reprehensible transaction.»
There are as many golden rules to banking as there are well functioning banking institutes and bankers. I tend to believe that an individual analysis, opinion and decision carry greater weight than conformity with rules, models and guidelines. Even – or maybe in particular – in the tricky area of morals in business, binding rules for professional ethics and the recently advanced «moral codex» for banks can only be one side of the medal.
The other is the individual allocation and managerial implementation. A formal adherence to rules alone won't prevent a reprehensible transaction, neither will a sophisticated system of limits for countries or industries exclude the loss of such a background entirely.
«Violating abstract professional rules in an isolated case can often prove to be more appropriate than willful conformism.»
Violating abstract professional rules in an isolated case can often prove to be more appropriate in a material as well as non-material sense than willful conformism. The service of a banker furnished in the form of a string of transactions is a job of high precision. Exceptions are a common and important element for continued success both in a material and ethic sense.
The competence to rule on exceptions however has to remain in the hands of people who are both responsible but also willing to take responsibility. Their commitment must be geared towards professional ethics rather than business prospects as the guiding principle.
«A banker needs solid professional knowledge, but also common sense and human know-how.»
And to nobody's surprise, this leads us to the people who have to carefully respect and control the vulnerability in day-to-day banking business. What is the person like who continuously takes, controls and secures the calculated risk? A banker needs solid professional knowledge, but also common sense and human know-how. He's an expert in proportions and benchmarks and displays an undivided commitment to integrity and good conduct.
As long as he is doing his business in keeping with these talents, the acclaim will be his as well as the satisfaction derived from true professional achievements.
Source: «Die Verletzlichkeit des Bankensystems» by Robert Holzach, Chairman of the Board of Union Bank of Switzerland (1980-1988), SBG-Schriften Nr. 79; published in January 1982.
Robert Holzach (1922-2009) was a leader of the Swiss banking community as chairman of Union Bank of Switzerland (UBS). He became a powerful figure in the mid-1960s and was its Chairman from 1980 to 1988, later as Honorary Chairman until 1998. He was credited with expanding the bank's horizons well beyond its traditional business base in the Swiss mittelstand of family companies and their owners.
Among his innovations were also the creation of UBS's think tank and conference centre Wolfsberg overlooking Lake Constance, the James-Joyce-Foundation, the Max Bill sculpture in Zurich as well as the renovation of the Augustinerquartier with the opening of the Hotel Widder. Holzach was a passionate art lover and writer.
