Is “bigger better” for banks from an organizational culture perspective?
One of the big business topics in October was how to address banks considered “too big to fail.” According to Allan Greenspan, former Chairman of the U.S. Federal Reserve - “If they’re too big to fail, they’re too big.” Paul Volcker, another Fed Chair and Bank of England Governor, Mervyn King think these “too big to fail” banks should be split up, separating commercial and investment banking. While the current Fed Chair Ben Bernanke and U.S. Treasurer, Timothy Geithner support a “wait and see” approach and then recommend the use of a form of bankruptcy re-structuring to address the banks that fail.
I do not have an easy answer to this complex regulatory decision, but I do have some knowledge from an organizational culture perspective about how the bigger is better belief plays out in organizations. This belief may start with founders and/or leaders focusing on measuring their company’s success through growth in market share, revenues or customers. If this approach proves successful, they may find that bigness brings benefits, such as domination of their industry which drives out competitors. It may lead the company to play an industry leadership role and be able to set their own rules and drive government oversight and regulations. Maintaining a reputation and images of strength, bigness and power are important.
The classic downside of the cultural belief in bigness is a corresponding sense of organizational arrogance and inflexibility that leads to the perspective that “we know what is best for our customers, regulators and our industry.” At the same time, emphases on good internal management structure and practices are hard to maintain as leaders are focusing on their external business environment to maintain or grow bigness. The death knell for most organizations with a bigness is better cultural belief is similar to many kinds of empires, based on bigness - somebody smarter, faster or stronger comes along and pulls them down.
Consequently using this cultural perspective as a guide, let’s think about the question of what to do with banks that are considered “too big to fail.” From the empire perspective, I am not sure I want the banks that are supposedly our financial centers providing credit and a flow of money for all kinds of private, public and not-for-profit entities around the world to be on paths to eventual failure.
It looks to me that Allan Greenspan maybe right - “If they’re too big to fail, they’re too big.”
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