Author: JanMusschoot

Three ways to attract new bank customers

Any banker will tell you that it’s not easy to attract and keep new clients. Why do people change banks? I see three reasons:

  1. Home buyers get better terms on a mortgage compared to their existing bank.
  2. Savers get a higher interest rate on their savings.
  3. The new bank has better services.

Roughly speaking, (1) is the stategy of traditional banks. Online savings banks attract deposits with (2) and fintechs employ strategy (3)1.

Let’s apply this framework to NewB, a new Belgian bank (yes, it’s really called NewB). How easily it will attract customers?

  1. You can’t get a mortgage at NewB.
  2. The interest rate on its savings account will be zero percent, which is less than the minimum of 0.11% at other banks.
  3. Finally, there’s no indication that it will delight customers with superior services.

So NewB scores zero out of three.

Yet NewB’s business plan expects the bank to have 277 million euro in deposits by the end of 2024.

Some Chinese banks offer pork meat as a reward for opening an account. Maybe NewB should give an Impossible Burger to new customers? Otherwise, this is gonna turn into Mission: Impossible.

Da gade gij nie betale

Staatsschuldfobie is een merkwaardige aandoening.

Alsof er plots een deurwaarder zal aanbellen om ‘jouw deel’ van de staatsschuld op te eisen. Nee dus.

Landen moeten hun schulden niet afbetalen (de staatsschuld is overigens veel te laag).

Wanneer er nog eens iemand jammert over de staatsschuld, denk dan stilletjes “da gane kik nie betale”.

Central banks will always be political

What do crypto enthousiasts have in common with defenders of independent central banks?

Based on the “Buy Bitcoin”-replies to ECB/Fed tweets, it seems the answer is “not much”.

However, that’s incorrect. Both groups think that their projects are apolitical.

Many central bankers view themselves as technocrats, divorced from politics.

But that’s a fantasy.

You see, anything a central bank does – even within its mandate – has political consequences.

Should monetary policy take into account climate change?

Should the central bank change interest rates or do QE to reach its inflation goal? Whatever option is chosen, monetary policy has distributional effects. For example, the German government has saved hundreds of billions in interest costs.

European non-financial corporations have benefited from low interest rates. Source

These two dilemmas illustrate that central banking is inherently political.

Therefore, economists should calculate the consequences of different monetary policy options. These scenarios will make the politics of the central bank’s actions explicit. For example, I estimated the effect of deeply negative interest rates (a proposal of Miles Kimball) on banks, governments, the ECB and the private sector.

Especially in the euro area, the ECB should take differences in asset mixes between countries into account.

Increased transparency will enable central bankers to defend monetary policy against criticism.

Update 26 January 2020: my arguments are obviously not new, see for example:

… en dat allemaal met ons belastinggeld!

Iedereen heeft wel een mening over de belastingen. De meesten vinden ze te hoog en slecht besteed.

Maar hoeveel brengen de belastingen op? Waar gaan ze naartoe? Wat zijn de alternatieven?

In mijn nieuwe lezing Gepluimd? geef ik een overzicht van de belastingen in ons land. De onderstaande figuur toont alvast het grote plaatje.

Waarop zou jij besparen?

Zie ook: Wat gebeurt er met uw 100 euro belastinggeld?

Update 18 juli 2020: in deze video legt Toon Vanheukelom uit waar het belastinggeld naartoe gaat.

How mathematical modeling saved money and sped up innovation in 1570

Computer-aided design (CAD) enables engineers to create products much faster and cheaper compared to trial and error.

But did you know that innovators have used abstract modeling long before the existence of computers?

Anton Howes, a historian of innovation, tells the story of Matthew Baker. Baker was a 16th century shipbuilder who improved the construction of carvel ships.

Carvel-built hull versus the previous clinker-built method. Source

As Howes explains:

What Matthew Baker did in the 1570s was to take the design process out of the shipyard, and onto paper. He drew his ships, to scale. And by using pen and paper, with geometry to make such drawings possible, he opened up grand new possibilities for design. […] He drew out new designs for frames, using geometry to work out how any variation would affect the overall shape of the hull, as well as its weight and carrying capacity – all at the cost of only time, ink, and paper, and avoiding the huge potential waste of conducting experiments at full scale in wood. His process allowed him to innovate more easily, and even to design new measuring instruments.

Interestingly, the new methods were not quickly adopted in the rest of Europe:

By the 1580s, new English ships were among the most technically advanced in Europe, and even in the mid-seventeenth century, ship plans were apparently still unknown in France. Having once lagged far behind, geometry began to give English shipbuilding the edge.

It’s still true today that good business practices (a) can save you a lot of money and (b) are hard to copy.

Where do banks make money?

The FRED (Federal Reserve Economic Data) database is a treasure trove for bank geeks.

Bank’s return on assets by nation is one of many statistics that can be visualized with GeoFRED (click this link).

As you scroll through the years, you’ll notice a few patterns.

Return on assets is low in Western and Southern Europe, as well as in Japan.

Banks in the Americas, Africa and Central Europe achieve higher returns.

I’m curious to know what conclusions bank CEOs and regulators draw from these maps.

What are your thoughts?

Further reading:

Where in the world are banks profitable? (FRED blog)

Rethinking bank profitability (FT Alphaville, free but registration needed)

Cross border financial services: Europe’s Cinderella?

OK doomer

Beleggen houdt risico’s in.

Maar niet beleggen ook.

Journalisten zijn dol op “experts” die voorspellen dat er een beurscrash komt. Doemberichten zorgen voor clicks.

Analisten van de Amerikaanse bank JP Morgan hebben een overzicht gemaakt van hoeveel geld je liet liggen door hun voorspellingen op te volgen. De resultaten zijn ontnuchterend: tot 60%…

Niemand heeft een glazen bol. Trap dus niet in de val van de media en negeer het nieuws. Je portefeuille zal je dankbaar zijn.

New Year’s resolution

This year, I want to (a) increase my writing output and (b) increase my audience.

I plan to release three posts per week:

  • A post on banking (including the ECB) on Monday
  • Wednesdays will be devoted to random topics (research, macroeconomics, book reviews, personal stuff like the current post)
  • You can expect a Dutch language post about personal finance or the Belgian tax system on Friday

I will also share my posts more often on Twitter, Linkedin and Facebook, and submit op-eds to newspapers and other websites.

If you think a post would be useful for your friends, feel free to share it!

Hard work pays off

Remember Actually, lobbyists are good?

I wrote

it seems that the ECB is way ahead of the Federal Reserve when it comes to green central banking

Indeed, new ECB President Christine Lagarde acknowledged her institution’s climate responsibility at the European Parliament…

…and the European Investment Bank (EIB) will stop financing fossil fuel energy projects.

The hard work of the “climate and finance lobbyists” pays off!

Source