Current Banking System and Lending Within Modern Society

Aavesome
Aavesome
Aug 23, 2017 · 4 min read

Since the beginning of economic activities within human history, financial, economic and banking practice has developed significantly. From quasi banking and grain loans in Babylonia to rudimentary public banks in ancient Greece and Rome, to religiously restricted banking in the Middle Ages through to goldsmiths in Britain, from the concept of modern banking after the establishment of the Bank of Amsterdam then the Rothschild family backed stock exchanges, through to FIAT currencies — humankind has a long history of money, policies and fiscal understanding.

The question is whether society has actually progressed within the banking and finance sector since the 19th century? Without a doubt the financial, economic and banking systems have become complex. Rapidly developing markets and a lack of adequate regulation had led to the disastrous banking crisis of 2008. It might sound very trivial, however the collapse of the biggest financial industry players followed by the reaction of the governments and international fiscal organisations, they in turn just proved how large the problems were and what happens when centralised fiscal power lies in the hands of those who have only one common interest. Profit leading to greed. Now we have new terminology and everyday use of concepts such as too big to fail, governmental bail-outs and subprime mortgage markets. It is equally important and tragic, that after such a crisis which led to whole countries such as Greece losing their sovereign powers. Millions have been affected by austerity measures and/or a crash of the real estate market the world over, but the system is still intact. The response to the crisis has not seen to be enough to address areas where fiscal institutions and governmental bodies previously failed.

It is obvious that finance is an essential contributor for a good and steadily developing society. Research and development, innovations, progress of science and industries cannot be made possible without sufficient and stable financing. However the lack of true competition in the financial services sector can hinder and endanger such development in the long run.

Financial capitalism is one of the best examples of greed within poorly regulated markets. Intervention by the state should not be too excessive, however conditions for transparent competition must be in place. When there is let’s say X number of banks and non-banking financial institutions possessing most of the capital it may look like a perfectly competitive market? But is it really? Does the customer actually have a choice to borrow money from somewhere else? Is the customer properly informed about existing flaws in the system, when despite his actions, his investment could be worth nothing one day. Does the potential customer realise that the interests of shareholders are way above his? What we see here is a lack of transparency in the highly centralised market, driven by profits.

It is absolutely natural that businesses and industries are seeking profit, it generates progress and development. On the other hand if society, as a whole, is taking (or rather was imposed) with the massive financial burden and consequences created by this industry, it has a right to raise questions and demand answers. The same Industry responsible for the financial crisis (which was avoidable as it was concluded in the Levin-Coburn report dated April 13th 2011) did not so far take any social responsibility at all. There are countless reports about problems that the banking sector is facing, however there is no intent to demonstrate problems that arise for customers. It is much harder to obtain a loan/mortgage because banks do not trust potential customers as they used to. But think about this, customers also do not trust banks but very often they do not have any other choice.

The banking sector identifies rise of FinTech as a potential danger to the conventional banking services and states that future consolidation might be the key to face this challenge. New market players, development of blockchain technology and related services are seen as a danger and argument of customer protection is invoked, it sounds much like a joke after the crisis caused by the financial industry in 2008.

Transparent, international competition will lead to cheaper/faster services and more stability and access on the market, especially for those affected by the current system. In order to live in a prosperous and economically stable society many changes need to be made. Each of us can make a difference while making informed decisions, being socially responsible and active. The market will regulate itself in a consumer beneficial way, when consumers will have actual choice, proper information and knowledge. I highly encourage you to be socially active and support companies that adopted policies that are truly customer-oriented, in the long run it will benefit both society and businesses.

Scott Malsbury — Head of Communications @ ETHLend

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Aavesome

Swiss-based technology company focused on empowering people through innovation.

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