Wednesday 27 June 2012

How Not To Run A Bank In One Easy Lesson

On the 17th September 1948 the Indian Army and Air Force launched an assault on the State of Hyderabad to dethrone the monarch, Asaf Jah VII, Mir Osman Ali Khan. 

It ended the resistance of one of the last major rulers of one of the Princely States of India who had direct allegiance to the British Crown.

The Nizam of Hyderabad (see Wikipedia) had perhaps hoped that other Princes and rulers would hold out against the new India and retain control over their territories and that the British would honour their various treaties and agreements of the past to support the Princes.

In February 1949 the Government of India finished the job by nationalising the estates of the Nizam and later dismantling its political structure into three separate parts. 

Neither the other Princes nor the British Government offered the Nizam any help or support.  The UK media was decidedly unsympathetic.

As this blog goes in for grim ironies and ghosts from the past to see that the problems at RBS/Nat West/Bank of Ulster are said to arise in Hyderabad from some botched IT work causing a cascade of breakdowns in their systems is another notch on the butt.

My mistake was to comment on this to someone close to me.  As this person has had long experience in banking notably in back office work and operations control strong opinions were forthcoming. 

Whilst the key error may have been made by a humble minor employee the view was that this major failure should not have happened. 

What was at fault was not just higher management in Hyderabad but the whole ethos and systems of management at the head office of the bank. 

The top management in its own field of activity in the past went catastrophically bust and clearly when it came down to the hard work, making sure the ordinary service banking bit worked, they proved to be useless.

It is no good calling for this lot to be nationalised.  They already have been.  This is “our” bank that failed in its basic functions. 

Is it time for a fundamental restructuring of this group of banks and should it be done as soon as possible?

Given the uncertainties plaguing the financial markets the failures at RBS etc. could have started a run on the bank.

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