JOHN MAXFIELD'S MAGNUM OPUS ON BANKING - PART I

Fifteen years in the making, this series lays out a comprehensive and robust model of banking.

"About every fifteen years you find out if the benefit you get was commiserate with the risk you took."

Michael J. Dierberg
Chairman of the Board, First Bank

The model I lay out in this series of posts has until now only been shared with the folks in my inner circle.

It’s a special group of people that includes many of the brightest bankers in this country, as well as prominent industry lawyers, regulators and investors. These folks occupy the inner sanctum of American banking. They led the industry over the past three decades, and I believe they’ll lead the industry over the next two. It’s from them who I’ve learned much of what I’m about to share.

You’ll find this series, I believe, to be both timeless and timely. It posits a robust and comprehensive model of banking that explains everything that has transpired in the American banking industry since George Washington gave his first inaugural address in 1790. It also crystallizes what’s going on right now and foreshadows what is likely to happen in the months and years to come.

By the end of the series, you will know more about banking than 95 percent of people who work in the industry. It will arm you with a potent competitive advantage. Think of it as my gift of gratitude to those of you who have supported my work. In this first post, we’ll establish a common foundation upon which to build in future installments.

General rules and exceptions

I’ve heard it said that banking is like any other business. Shoe stores buy and sell shoes. Law firms buy and sell legal services. Restaurants buy and sell meals. It accordingly follows that banks do the same thing, but instead of buying and selling shoes, legal services or meals, banks buy and sell money. 

This is fair as a general rule. But here’s the problem: there are fundamental exceptions to this rule (I call them peculiarities) that render it obsolete. The first three leave banks uniquely prone to failure, while the last two make banks acutely vulnerable to the consequences of errors committed. If one wants to master the study of banking, this is the place to start.