Bankers: the misunderstood professionals

Bankers today are often viewed through a narrow lens as profiteering professionals. With each bank failure or financial crisis, the finger is pointed at them. Much of this misunderstanding is caused by limited public awareness of how banks and bankers actually function in a complex modern economy. The purpose here is not to prove a case but to place matters in perspective.

When I began my banking career in the 1960s, the role of a banker was not so complicated. Over the last few decades, the innovation of financial products, combined with pressure to extend services to the unbanked, has enlarged both the scope and the complexities of bankers' work.

This crucial role was recognised again in 2022 when the Nobel Prize in Economic Sciences was awarded to Ben Bernanke, Douglas Diamond and Philip Dybvig. Their work offered theoretical and empirical insights into how banks operate and why they are vulnerable to runs and crises. All three laureates have been professors at renowned American universities. Bernanke also served as chair of the US Federal Reserve from 2006 to 2014.

Diamond and Dybvig showed that banks are not mere middlemen. They bridge the gap between savers and borrowers, a process called financial intermediation. They also perform the vital task of maturity transformation, converting short-term deposits into long-term loans. Another key function of modern bankers is fractional reserve banking, through which they create new deposits, also called derivative deposits.

Bernanke showed that banks are inherently fragile. Runs do not always occur from internal failures, but also from external factors. Structural weaknesses in financial systems, macroeconomic shocks or policy mistakes often play a part.

The recent banking crisis in Bangladesh illustrates how some innocent bankers become scapegoats in troubled times. In several cases, bank owners, aided by cronies, looted the institutions under their control. Justice requires a clear distinction between such swindlers and the wider community of professional bankers. The misdeeds of a few must not overshadow the role that ethical and skilled bankers play in supporting stability and national development.

In this context, many point to Bangladesh's recent mega projects. Without a professional banking framework, such projects would never have taken shape. These projects are built by overseas contractors who require the government's assurance of financial integrity. Verification goes through a banking process. International banks issue guarantees on behalf of the contractors, while local banks take on commercial risks with those banks and issue counter guarantees to local agencies. All this happens under established international protocols, implemented by local bankers.

The Nobel laureates also demonstrated with evidence how, during the Great Depression of the 1930s and the global financial crisis of 2007-08, financial intermediation collapsed, and how banking capability restored stability.

The general public can only perceive what they see at the two ends of intermediation: receiving money from savers and lending to borrowers. They rarely glimpse the processes behind the scenes. The intermediation skill of bankers is a lifelong craft, refined through experience rather than gained from a business school certificate. Like a mason laying brick upon brick to build a castle, bankers connect transaction after transaction to construct the complex architecture of finance. And much like a castle's polished façade hides the sweat and labour behind its walls, the outward appearance of banking rarely reflects the depth of bankers' toil that sustains it.

The writer is a former banker