Are We Learning the Wrong Lessons?

By
Forex Money for Exchange in Currency Bank
Are We Learning the Wrong Lessons? - Jonathan C. Vogan

Abstract

In handling the current financial crisis, policymakers are seemingly blind to the opportunity to re-fashion the financial sector into a more efficient and competitive form. This failing is due to three major erroneous lessons: that it is better for banks to be big than to be bust; that securitization is without social value; and that investment banking is dead. Large commercial banks pose both a systemic risk and a risk to competition. Securitization is necessary to reduce the concentration of risk in smaller banks. Investment banking is a necessary activity, and should be made up of smaller market participants.

Introduction

The current financial crisis has left many formerly private financial institutions under either the partial or complete control of the public sector. This has happened in both the Anglo-Saxon world of the US and the UK, and in continental Europe. It is reasonable to expect that this trend towards nationalization will continue in the months ahead as banks are forced to acknowledge more loan losses and even question their viability as going concerns. This trend presents government an opportunity unprecedented in the post-WWII era to determine the structure of the financial sector. It is of critical importance that we learn the correct lessons from this and past crises and that the solutions we enact be thoroughly thought through. Unfortunately, on current evidence, it would appear that we are learning the wrong lessons.

Take three lessons that are gaining in prominence in the current debate: that it is better to let banks get bigger than to allow them to go bankrupt; that securitization is inherently flawed and serves no socially useful purpose; and that investment banking is dead. These lessons have all been much discussed, although it should be noted that the seriousness with which they are taken by policymakers and the more informed segments of the press is probably rising as one goes backwards through the list. All three of these lessons are wrong. Letting banks get bigger is only an invitation to reduce competition and facilitate continued abuse of moral hazard at broader societal cost. Securitization can still serve a very useful risk diversification purpose, especially for smaller banks, which tend to be more geographically focused. Investment banking as an activity is in no long-term danger, but policymakers should end its domination by firms with trillion dollar balance sheets and usher in a return to an industry made up of much smaller and more numerous firms. More broadly, this crisis is not the end of capitalism, but it would be good if policymakers used this opportunity to end the dominance by capital.

Better to be big than bust?

There is a seemingly endless willingness on the part of regulators in multiple countries to ensure that no big bank goes bust: the US government’s efforts to ensure the continued viability of both Citigroup[1] and Bank of America[2](which together with the Troubled Assets Relief Program (TARP) and the AIG bailout has been estimated by the Congressional Budget Office to have already cost the taxpayers a subsidy amount of 58B USD);[3] the British government’s effective nationalization of RBS; and the repeated capital injections given to Commerzbank by Germany’s government, the second injection for the explicit purpose of keeping Commerzbank’s purchase of Dresdner Bank from failing, which would have resulted in Dresdner’s failure.[4] This is to say nothing of earlier efforts to save smaller institutions by forcing them down the altar to relatively more stable competitors, Bear Stearns to JP Morgan, HBOS to Lloyds and Merrill Lynch to Bank of America, as opposed to having simply nationalized the defunct institutions.

The political imperative behind these actions is easy to decipher. After Lehman Brothers’ bankruptcy, no government wants to be seen as letting another failure happen on its watch. This is fine, but it comes at a not-inconsiderable long-term price to banking competition, to say nothing of financial stability. The public is made to pay twice, first to bail out the bankrupt institutions and then insidiously by being subject to inadequate competition for the provision of banking services. If big banks cannot but help to exploit the moral hazard that their systemic risk creates to their private benefit and exploit the market power from excessive concentration, regulating banks more rigorously is not the only solution; banks could simply not be allowed to be big. Current policymakers, including at the US Treasury and the US Federal Reserve, are not considering this option, as they continue to search for ways to change the regulatory system to “address effectively at an early stage the potential failure of any systemically critical financial institution.”[5] Such a position assumes that such large and systemically critical institutions will continue to exist, which doesn’t have to be the case. Bank size could be reduced by changing the formula for deposit insurance to make the percentage charge an increasing function of risk-weighted assets. This would have recurring benefits to the real economy by increasing competition, which is not likely to be offset by reduced economies of scale (which I discuss below), while significantly lessening the risk and severity of future financial crises. A further benefit would be the greater diversity of opinion that exists in a banking sector with less concentration. This helps new firms gain access to capital.[6]

A recent G-30 report, chaired by Paul Volcker, recommended limiting the concentration of the banking industry.[7]Government actions, principally in the US and the UK, have so far gone against this piece of advice. The last minute JP Morgan purchase of Washington Mutual only avoided the rule against a bank merger resulting in a single entity having more than 10% of total US bank deposits because Washington Mutual is legally incorporated as a thrift and not as a bank.[8] The UK government ignored competition law to allow Lloyds to take over HBOS and so to prevent HBOS from failing.[9] This occurred in a market that already had a very significant degree of concentration and was described as “making excessive profits” by a competition authority report.[10] In the short-term, strong government involvement in the management of the UK banking sector (having taken major stakes in every clearing bank except HSBC) is likely to block anti-consumer behavior, but eventually the government plans to sell these shares and then the UK will be left with a banking sector that is even more concentrated.

A further concern with the state of banking sector competition comes from the financial incentives now faced by the state as both the regulator and as a major shareholder. Both the US and UK governments have firmly communicated a desire for these investments to produce a positive financial return for their respective treasuries.[11] This creates an incentive for the governments to alter their regulatory practice so as to enhance the market power, and resulting shareholder value, of the banks. The UK government’s action to ease the effects of Basel II regulations could be only the first example of such behavior.[12] That governments would disadvantage the wider economy to achieve such a “success” is not very difficult to fathom. Examples of governments sacrificing diffuse cost to the cause of concentrated benefit are not difficult to find, the 2002 US steel tariffs being just one such example.

If these damaged titans of the banking industry are not to be resuscitated in their current form to the specious enrichment of the taxpayer, what is to be done with them? They could be broken up. The competitive landscape of the industry would be enhanced if these large institutions were broken up into much smaller pieces and sold back to the private sector in bite-size pieces. This would certainly result in the government treasuries showing a loss for the recapitalization/nationalization exercise, as the loss of future excessive profits was removed from the market value of the firms, but this would be more than offset by the increased societal benefit from greater competition.

That greater competition would result from such action is not certain. Since some large banks have escaped the nationalization path up until now, it is possible that breaking up those under the control of the state would simply result in a more concentrated banking sector. The long-term solution to this is to do away with those concentrations of banking activity as well. In the short-term, the deposit insurance charges for such large banks should be significantly increased to reflect their greater systemic risk and the resulting moral hazard that results from their larger size. This would be accomplished by adding a size variable to the calculations for deposit insurance that currently only reflect individual bank solvency.[13] Such a structure would provide a non-arbitrary and non-rigid but real and consequential limit on the re-emergence of large banks in the future. This could even result in the nationalization of such banks as the higher deposit insurance charges could undermine their financial sustainability. Competition authorities should also greatly increase their focus on financial institutions—both those remaining under private control and those now operating as wards of the state.

Large private banks would argue that they do not pose this higher systemic risk. However, during the 1980s sovereign debt crisis, in response to the US Comptroller of the Currency stating that some banks were “too big to fail,” research has shown that the shareholders of these banks subsequently earned excessive returns.[14] The resulting behavior that this induces in bank owners is logical if we take a simple model of a private bank. Assume that the bank has a unitary owner-manager, who stands to lose the bank’s market capitalization in the event of bankruptcy. Next assume that market capitalization is proportional to asset base and that the likelihood of state bailout, defined as making whole all deposits, not just those below the statutory levels, increases with asset size. If depositors know that they are more likely to get their money back in the event of bankruptcy from a larger bank (one more likely to be “too big to fail”), then these depositors will accept lower interest rates on their deposits. This increases the profitability of the bank, all other things being equal, so the owner-manager will strive to increase the bank’s assets without limit. In addition to this, the owner-manager is likely to increase the risk profile of the bank, as the possibility of state bailout represents an implicit put option that has been sold to the bank by the state, whose value rises with the bank’s volatility.

The standard industry response to this claim of the costs of size, is to point to the economies of scale that exist in banking. There is much to support this, particularly in the US’s experience with intra- and inter-state banking deregulation in the 1970s and 1980s.[15] These benefits can be summarized as being made up of operational efficiencies and risk diversification advantages, in addition to the general benefits that result from introducing greater competition into a market. The operational advantages of multi-branch banking cannot be denied. The costs imposed, for example, by Illinois’s rule that all bank activities take place under one roof, included some bizarre structures covering multiple buildings in downtown Chicago, but also real increases in operating costs in the form of foregone productivity growth.[16] However, that a bank needs thousands of branches to fully benefit from the available operational efficiencies is dubious. The market for third-party providers of banking software, the center of most bank “processes” these days, and even for physical services such as check issuance and retail lockbox, among others, is active. Drawing from the experience of the automobile industry’s use of part suppliers,[17] it is entirely conceivable that greater use of outside suppliers in the banking industry could improve operational efficiency by making it easier for innovations to spread throughout the industry. This is particularly true as the benefits of outsourcing increase with greater product standardization. Avoiding the pointless race for greater complexity in product structuring that characterized finance in recent years would mean that outsourcing would be beneficial.[18]Today, the largest banks all replicate, on their own, much of their IT infrastructure and software. If these banks were broken up and their progeny became active clients of the banking services industry, operational efficiencies could actually improve by making more banking processes subject to broader market competition.

The issue of risk diversification is different. It has been shown that during the Great Depression, it was not the large national banks, but the smaller regional or local banks that failed more often, in the face of geographically concentrated and correlated loan losses.[19] It should be noted that recent scholarship has brought this explanation into question,[20] but the final conclusion with regards to the benefits of lesser concentration remain.[21] Breaking up today’s very large national banks would seem to move in the direction of a return of diversification problems, but this overlooks a significant advance in finance: securitization. Securitization is not held in very high regard at the present moment (more on that below) but it does make it possible for a smaller bank to avoid a geographically-concentrated loan portfolio by selling on a significant portion of its loan book and buying securities backed by the loans of similar banks from other regions. This would most likely require intermediation to pool assets from different banks and so produce diversified securities.

Securitization, the root of all evil?

It has become commonplace in certain circles to blame the current financial crisis on securitization.[22] Specifically, the securitization of mortgages, especially sub-prime mortgages in the US, is seen as an inherently de-stabilizing phenomenon. It is undeniable that the rapid fall in market value of many mortgage-backed securities (MBS) was a precipitating event of this crisis. However, the extent to which this is a result of the process of securitization has been over-stated, and where securitization did have procedural failings, these have, in some corners, been exaggeratedly portrayed as something akin to original sin from which there is no possible redemption.[23]

The most important point about securitization is that, while it can move risk around and obfuscate that risk, it does not alter the underlying reality, and consequent risk, of the assets that have been securitized. In the case of MBS, the loss in value, was fundamentally a result, not of the process of securitization, but of the delayed recognition of the poor repayment prospects of the underlying mortgages. In a world where people could get a mortgage with no down payment, or without any proof of income, employment, or other assets, it was inevitable that financial value was going to be destroyed.[24] Securitization just shifted the loss to investors other than the originator of the loan.

It has been argued that securitization’s value is more theoretical than actual and that the profits made in recent years have mainly been at the expense of investors.[25] This argument rests on the idea that valuation of securitized loans is very complicated and liable to error by the purchasing investor. It is certainly true that the valuation of such structures is not easy, but some entity must own the underlying assets and that entity is almost certainly likely to own portfolios of them (it is possible for individuals to own a particular mortgage but this is rare and exposes the owner of the mortgage to a very concentrated credit risk) and so has to consider valuation of large groups of mortgages, just as he or she would if the loans were securitized. So the problem, while difficult, is not avoidable.

However, it has further been argued that securitization, by separating the originator from the credit risk of the mortgage, encourages reckless lending. This would undoubtedly be true if the originator could always be sure of finding a greater fool to whom to sell the mortgage. This is not an inaccurate description of many of the MBS transactions in the last several years. Yet, the responsibility of the buyer of the MBS should also be acknowledged and considered. The reality of these assets, where borrowers were practically being told to lie about their financial circumstances, were known at the time, but MBS investors knowingly chose to ignore these risks in the hope of finding a greater fool to sell the MBS to before the price collapsed. This market failure logic is well known, and should be recognized.[26] However, it must also be recognized that these types of mistakes are not indefinitely repeated in static environments.[27] Therefore, we can expect that the future of the MBS market will be a lot more like it was before the most recent past, when the underlying mortgages were required to be of a higher quality and the resulting MBS were less risky. Also, originators could reduce the perceived risk of reckless lending by maintaining exposure to early losses on the securitized portfolio of mortgages. This is the norm in other securitization markets, such as those for credit cards, auto loans, and commercial mortgages.

So, having established that the recent collapse in value of entire sections of the MBS market was due in large part to the delayed recognition of the shoddiness of the underlying mortgages, we can then ask the question if there are elements of the existing MBS process that destroy value. Specifically, attention has been drawn recently to the fact that it is almost impossible to restructure a mortgage once it is in an MBS pool. This is because such securities contain terms requiring the processor to obtain the permission of a large majority of the MBS-holders before re-negotiating the terms of an underlying mortgage, even when such an action is beneficial to both sides as the only alternative to foreclosure. Such a problem is easily remedied for future MBS by changing such terms, and therefore should not be considered as an inescapable failing of securitization.

Is investment banking really dead?

With the acquisitions-under-duress of Merrill Lynch and Bear Stearns by Bank of America and JPMorganChase, respectively, the bankruptcy of Lehman Brothers and the application to be regulated as bank holding companies by Goldman Sachs and Morgan Stanley, many commentators spoke of the end of the independent investment banking. Such talk, more common in the popular press than in the financial press, reflects a confusion of form for function. The bulge bracket US investment bank, regulated exclusively by the SEC, is clearly not going to return, but sophisticated professionals who issue securities, provide advisory services, and do market-making are not going anywhere for the simple reason that these activities remain central to the financial market in the US and other developed markets.[28] Actually, the current prognosis for the industry is perhaps relatively upbeat as the number of competitors has thinned out with the withdrawal of several second-tier players, an outcome that should be avoided for its dampening effects on competition. However, it should be remembered that the large increase in the capital deployed and the concentration of said capital in the investment banking industry was largely driven by the entrance into the business by large commercial banks with large balance sheets. These were used to gain access to what previously had been a relatively financial capital-lite and profit-rich business. It could be that investment banking as we know it is dead, but that the investment banker is likely to be reborn, in a form much like that of a previous era, although a better competitive oversight process would be needed this time around to avoid the clubby behavior of the past.

What do investment banks do with their capital? There are three broad categories of activity into which capital has been deployed. The bread and butter of investment banking, taking new securities to market, both equity and fixed-income, requires capital to allow the investment bank to actually underwrite the issuance of the security. This basically hands over the risk of not finding enough buyers at the offer price from the company whose security is being issued to the investment bank. This has obvious advantages for the company but is not a fundamental necessity of the process. Instead of underwriting a security, an investment bank can also issue it on a “best efforts basis.” This means that anything they can’t sell is returned to the company. The “best efforts” model has been used less frequently in recent years, but if there were less capital available, it could return. It might even address a conflict of interest between the company whose issue is being taken to market and the investment bank doing the underwriting. The investment bank has an incentive to under-price the security to guarantee that it is not left holding any at the end of the day. Given that the investment banks are traditionally paid on a percentage basis for this work, the interests of the two parties could even be more closely aligned in a world with much more frequent use of “best efforts” issuance and less reliance on balance sheet heft.

The second traditional usage of capital is to make markets in securities, to serve as broker-dealers. As this business requires owning the security for at least a certain amount of time, it is inevitable that capital will be required. While this business can be dis-intermediated for heavily traded securities such as large-cap equities, there will always be securities that require a broker-dealer intermediary due to the relative lack of liquidity and as such a need for capital to be deployed in this line of business. However, the amount of capital deployed in this area has in recent years grown significantly. This has largely been due to the emergence of prime brokerage as a new revenue stream for the investment banks.[29] Prime brokerage involves a series of services sold to high volume trading clients, principally hedge funds. Included in this is lending securities for short-selling and providing leverage, i.e., lending money. This is consequently a capital-intensive line of business. But the lending need not be done by the investment bank in its role as broker. It is entirely possible for the brokering and lending to be separated. This would require the development of new standards for inter-firm operability to allow the lender complete visibility and blocking control over the loan recipients’ trading, but this is in no way an insurmountable problem. Of course, the entire business of lending to hedge funds is already in severe contraction, but that doesn’t do away with the need to change form as well as size.

 

The amount of capital deployed in market-making activities is normally joined together with the third category, proprietary trading, under the generic label of trading. This obfuscation hides from investors the extent to which revenue is based on client-flow trading, serving as a broker-dealer, which is good, as opposed to proprietary trading, which is bad, because it is always at risk of reversal if the bank makes a bad bet, as many did in the recent period. Proprietary trading has grown in prominence among investment banks in the last several decades, reaching the point in the last several years where some banks seemed to be closer in nature to hedge funds than banks of earlier years. This deployment of capital does not have a necessary purpose within an investment bank. It is true that it can be very profitable, but to the extent that this is true then it should be done in a stand-alone hedge fund with complete transparency to outside shareholders. Investors seeking such an exposure—and they are fewer in number these days—could invest directly in the hedge fund.

Does an investment bank have an advantage in proprietary trading over a standalone hedge fund? It does, but it shouldn’t. The advantage that proprietary trading has within the umbrella of a larger investment bank with its client-based, market-making activities is to benefit from the informational advantage that comes from such activities. Put simply, it helps to make money in the markets, if one sees the orders coming into the market before they are executed. Exploiting informational advantages is a recurring phenomenon. The outsized profits that come from this are at the expense of the wider market. As such, ending this business would have general benefits.

Where would this leave the investment bank? The investment banking model would require less capital, would focus on issuance, consulting, and market-making, and consequently would have much lower barriers to entry. One can already see this re-alignment taking shape. Many boutique investment banks, such as Jeffries Group and Amherst Securities Group, that are already built along such lines have been quietly expanding their staffing and preparing for the eventual day when they can fight for business based on the quality of their ideas and prior execution and not on the size of the balance sheet they can deploy. In short, the days of the trillion-dollar investment bank may be over but the investment banker is not likely to disappear anytime soon. This transition should be welcomed by government, not subverted as has been done by giving large capital infusions to Goldman Sachs and Morgan Stanley under the Capital Purchase Program,[30] as well as the large transfers to these same institutions that happened indirectly through the AIG bailout.[31]

Conclusions

As the less-than-proud new owners of their bankrupt financial sectors, governments have to decide what they are going to do with them. Proposals that would rehabilitate the existing institutions, such as “good bank/bad bank” (or more appealingly “aggregator bank”) fail to capitalize on the unique opportunity presented by such a situation. Much as Dean Acheson, writing of a different time and place, implied in the title of his memoirs Present at the Creation, today’s policymakers have before them the real chance to refashion the financial sector in such a way as to not just revive it, but to create something inherently more stable. By changing the rules in such a way as to prevent the re-emergence of great concentrations in the banking sector, ensuring the revival of the securitization market and removing the incentives for investment banks to require large amounts of capital, today’s policymakers can ensure not only that the economy will recover, but that competitive capitalism returns to finance, to the benefit of us all. This benefit would be in the form of a more robust, competitive, innovative, and open to innovation financial sector. In simpler terms, such a sector would be better than that which we have today.

Notes & References

  1. “Citigroup to get $20bn bail out,” The Financial Times 24 November 2008.
  2. Greg Farrell, “Merrill’s loss puts BofA’s federal aid into context,” The Financial Times 17 January 2009.
  3. Congressional Budget Office, The Troubled Asset Relief Program: Report on Transactions Through December 31, 2008 (Washington, DC, 2009) p. 2.
  4. Ralph Atkins, et al., “State shores up Commerzbank,” The Financial Times 9 January 2009.
  5. US Treasury, “The Role of the Federal Reserve in Preserving Financial and Monetary Stability: Joint Statement by the Department of the Treasury and the Federal Reserve” 23 March 2009.
  6. Raghuram G. Rajan and L. Zingales, Saving Capitalism from the Capitalists: How Open Financial Markets Challenge the Establishment and Spread Prosperity to Rich and Poor Alike (London: Random House Business Books, 2003) pp. 252–254.
  7. The Group of Thirty, Financial Reform: A Framework for Financial Stability (Washington, DC, 2009).
  8. Geraldine Lambe, “Which way now?” The Banker November 2008.
  9. Jane Croft, “Muted fanfare as Lloyds TSB rescues HBOS,” The Financial Times 17 January 2009; Joshua Rozenberg, “Go-ahead for Lloyds TSB merger with HBOS leaves competition law in tatters,” Evening Standard (London) 16 December 2008.
  10. Competition Commission, “The supply of banking services by clearing banks to small and mediumsized enterprises,” (London, 2002).
  11. Jon Ward, “Budget office doubts bailout will turn profit; Bush,Obama tout taxpayer returns,” Washington Times (Washington, DC) 14 October 2008; Francis Elliott, P. Hosking and P. Webster, “Darling’s longest night: from mass takeaway to massive giveaway,” The Times (London) 9 October 2008.
  12. “UK banks,” The Financial Times 22 January 2009.
  13. Federal Deposit Insurance Corporation, “Deposit Insurance Assessments,” 19 December 2008,http://www.fdic.gov/deposit/insurance/assessments/risk.html.
  14. Maureen O’Hara and W. Shaw, “Deposit Insurance and Wealth Effects: The Value of Being ‘Too Big to Fail’”The Journal of Finance 45, no. 5 (December 1990): pp. 1587–1600.
  15. Jith Jayartne and P. Strahan, “Entry Restrictions, Industry Evolution, and Dynamic Efficiency: Evidence from Commercial Banking,” Journal of Law and Economics 41, no. 1 (April 1998): pp. 239–273.
  16. Dogan Tiridoglu, K. Daniels, and E. Tiridoglu, “Deregulation, Intensity of Competition, Industry Evolution, and the Productivity Growth of U.S. Commercial Banks,” Journal of Money, Credit, and Banking 37, no. 2 (April 2005).
  17. Gene M. Grossman and E. Helpman, “Integration versus Outsourcing in Industry Equilibrium,” The Quarterly Journal of Economics 117, no. 1 (February 2002): pp. 85–120.
  18. “Special Report on the Future of Finance,” The Economist (23 January 2009): p. 13.
  19. Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963) p. 358.
  20. Mark Carlson and K. J. Mitchener, “Branch Banking, Bank Competition, and Financial Stability,” Journal of Money, Credit, and Banking 38, no. 5 (August 2006).
  21. The shift in focus to greater competition as the explanation for lower bank failure rates also supports the argument for a turn away from the very large banks of today, as such institutions have no reasonable risk of takeover, except under the most extreme of circumstances, e.g. the aforementioned example in the UK.
  22. Larry Elliott, “Credit crunch: Volcker blames ‘alchemists’ and bloated bonuses,” The Guardian (London) 18 November 2008.
  23. The section on securitization focuses on MBS and other structured securities that are only one degree removed from the original asset. The case in defense of more exotic collateralized debt obligations (CDO’s) and even CDO^2 is much harder to make. Such securities are not completely without value, but they are not essential in the same way that MBS are.
  24. Kathleen Day, “Enter the NINJA: A Subprime Glossary,” Washington Post 1 June 2008.
  25. John Kay, “Wind down the market in five-legged dogs,” The Financial Times 21 January 2009.
  26. Owen A. Lamont and R. H. Thaler, “Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs,”The Journal of Political Economy 111, no. 2 (April 2003): pp. 227–268.
  27. Virginia Postrel, “Pop Psychology: Why asset bubbles are part of the human condition that regulation can’t cure,” The Atlantic (December 2008) .
  28. Philip Augar, “Do not exaggerate investment banking’s death,” The Financial Times 22 September 2008.
  29. Richard Beales and J. Chung, “COMMENT AND ANALYSIS: Banks take to a supporting role as hedge funds flourish SECURITIES INDUSTRY: Risks lurk as Wall Street’s finest vie for prime brokerage status at their most active clients, write Richard Beales and Joanna Chung,” The Financial Times 9 August 2006.
  30. US Treasury, Office of Financial Stability, Transaction Report for Period Ending March 20, 2009: Capital Purchase Program (Washington, DC, 2009).
  31. “Cranking up the Outrage-o-meter,” The Economist (19 March 2009).
Jonathan C. Vogan is a dual-degree, M.B.A.-M.A. student at the Wharton School of Business at the University of Pennsylvania and the School of Advanced International Studies at Johns Hopkins University; he obtained his undergraduate degree at the University of Chicago studying mathematics, history, and economics. He spent five and a half years working, mainly in Brazil and the US, for an internationally active British bank, afterwards working in Malawi and for a French medical charity.