When starting this book, I was reminded of a passage in A Fire on the Moon, Norman Mailer's superb work describing the Apollo 11 mission:

“In the study of literature, much usually depends on direct confrontation with a work. Who would dare to approach A Farewell to Arms by a synopsis? It is only natural to distrust a literary experience if we have been guided too carefully through it, for the act of reading must provide by itself that literary experience upon which our senses will later work. But the study of science is different. Much like the study of history, it begins with legends and oversimplifications.”

— Mailer, N., A Fire on the Moon, London: Penguin Classics 1970.

If Mr. Mailer had substituted “Finance” for “Science”, his point would still be well made. And this is the unfortunate thing about finance and banking. More often than not it is learnt by practitioners using legends and oversimplifications, and the primary source of many of the biggest failures in banking history lie there. It would be better if practitioners approached the practice of finance as Mr. Mailer recommends anyone should approach the study of literature.

A former boss of mine, reviewing my performance at an annual appraisal, used the following words:

“You're good on the technical stuff, but…”

I found that an odd remark. We worked in a bank Treasury department, after all. Treasury and ALM are by their very nature technical subjects; surely technical strength in this discipline is a pre‐requisite? In other words, it isn't a strength to have technical skills in finance, they are actually essential. To me, that is like telling an airline pilot, “You're good at flying, but…” Would one wish to board an aeroplane whose pilot possessed poor flying skills? Equally, those without technical skills shouldn't really occupy senior positions in a bank.

Yet another boss at a different institution, the bank's Chairman no less, once remarked to me, “Why do I need to know how other banks do things? I've been in the business for 30 years, I don't care how other banks do things.” I found that an astonishing comment. If ever there was a person who should read Matthew Syed's superb Black Box Thinking it was him, a man so suffering from cognitive dissonance that he was unable to detect the fear of failure entrenched throughout the bank, from the Board downwards. The concepts of benchmarking, of open communications and of learning from mistakes, were unknown to him.

Sadly, these gentlemen's departments contained a fair smattering of individuals who were not technically proficient in the matters of finance (and sadly outnumbering greatly those individuals who were very proficient and whose understanding of banking and risk was as good as anyone I have come across. Unfortunately, very few of these latter individuals were to be found in senior executive positions at the banks in question. This is a not uncommon occurrence). As for not benchmarking with the market and not looking to determine what is best‐practice, well one doesn't need to be a genius to see that such an approach is a guarantee of absolute mediocrity and ultimate decline.

Financial markets, like the world we live in, are characterised by extreme complexity. It is an arrogant conceit to suggest that one could know everything there is to know about them, that one could fashion a model that would cover every eventuality. Mr Syed's book encapsulates with elegance and accessibility the importance of learning from one's mistakes, of accepting that failure, in any context and however large or small, is something to build on. But to do that requires intellectual honesty, an acceptance of genuine positive feedback, a willingness to test one's theories and ideas, and to be ready to adapt them if they are found to be sub‐optimal. These traits are rare in banking culture. But they are important and should be adopted.

The templates and recommendations in this book are applicable to every bank in the world, but they are not set in stone. In bank operating models there is frequently more than one right answer. The key is having the right operating model for your firm. Banks have to be able to respond to changing conditions, whilst always pursuing the primary objectives of long‐term sustainability and good customer service. That means modifying procedures and governance models where necessary. In finance, templates and policy guides must be adaptable. Certainly, principles are principles, and in banking some of them have remained good for over 600 years. But that doesn't mean one should operate in a “closed loop”. For example, bankers, and especially senior bankers, should check the efficacy of their views and ideas by presenting at industry conferences, so they can gauge responses and see where they stand relative to their peers and to the market. There is no stigma, in finance anyway, in being confronted with views different to one's own: on the contrary, this is a learning opportunity. If a working environment is open and honest about mistakes, and operates without a blame culture, then the entire organisation will learn. Sadly, actively seeking feedback is not a commonly observed trait amongst senior executives in the finance industry.

Finance, and banking, is art, not science. Finance is not physics; would that it was. If the art of banking required precision and continuously consistent relationships of the kind required to, say, place a robot lander travelling at 34,000 miles per hour on a comet that was over 317 million miles away, and to calculate with unerring accuracy the precise time that the landing will take place, then we could expect to model it reasonably well. But managing a bank does not involve such relationships. The laws of physics do not apply in banking, despite what the “quants” who practise their skills on the trading floors of large banks would like us to believe. Effectiveness in bank risk management comes about first by recognising this, and then by applying oneself first‐hand to the literature and practice of banking, and then acquiring over time, through practice, observation, implementation and indeed an element of trial and error, the judgement and experience needed to ensure one becomes reasonably proficient. There is no other way.

By definition then, one should not expect to reach a position of leadership and responsibility at a bank or financial institution until and unless one has acquired the correct and relevant body of knowledge in the same field. Heads of retail banks should have long experience in retail banking. Chairmen of bank boards should have long experience in banking as well as knowledge of the world of finance around them. Heads of Treasury should be good at the technical stuff. Anyone with a pretension to manage a bank should be prepared to benchmark with one's peers in the outside world and see if they are best in class, rather than just stagnating in their own bubble as the market outside moves on.

Unfortunately, the real world is not like that, thanks to what they call “office politics”, and wider stakeholders have suffered after the banks they were involved with were run into the ground by CEOs, Directors, and Chairmen that at best lacked the requisite experience and knowledge of finance, and at worst were no more than empire‐building charlatans. And this despite such people having been signed off by the regulatory authority as “fit and proper” persons to run a bank. We all recognise these persons: those skilled in the art of talking a lot without actually saying anything, and as good at answering questions as any professional politician.

This state of affairs is a pity, because banks play such an important role in society that they need to be managed by those skilled in the art of finance, not politics. But there is hope: not every senior bank senior executive sees things in the short‐term P&L and empire‐building manner that some of them have done. Here is a heartening extract from an email I received from Mark Thompson, Chairman of Holmesdale Building Society, when I informed him I was quoting from the firm's annual report:

“While we're currently going through our annual business planning cycle, it also takes place in the context of how our next 160 years should shape up – something that's much harder to do when you have quarterly market expectations to hit!”

I think this thinking encapsulates perfectly the essence of banking principles, which is the need to focus on sustainability and the genuine long term.

The Moorad Choudhry Anthology is two things: first, a collection of extracts from my previous books published by John Wiley & Sons Ltd which have remained pertinent to the banking industry and thus of continued relevance to today's market practitioners; and second, a series of brand new and previously unpublished pieces that I consider to be a best‐practice guide to both current practice and the shape of things to come. In other words, this book is part “compilation album” and part “the future of bank strategy and risk management”. And as such I hope the book is of value to anyone who wishes to pursue a career in banking at the senior executive level. It is not aimed at juniors, although they may well benefit from reading it. It's really for senior directors in banks, because they're the ones in a position of influence and they're the ones who can help to ensure that banks regain their position as a trusted part of society that delivers consistent excellent customer service and value. Banks need to remain viable in perpetuity, so all bank executives are really just temporary stewards of the balance sheet. And that's all that senior bank executives should be concentrating on. Because, to quote Baron Manfred Von Richthofen from another context, “Anything else is just rubbish.”

ORGANISATION OF THE BOOK

As one might expect of a work entitled “Anthology”, this book is partly a collection of extracts from my earlier works. The criteria for selection for this book is that the material, no matter its age, must still be relevant and useful to practitioners today. However, the book isn't just a compilation album, it also features new material that I feel is pertinent not just to today but should remain so in the future.

The book is comprised of five parts, as follows:

• Part I: Principles of Banking, Finance and Financial Products
• Part II: Bank Regulatory Capital and Risk Management
• Part III: Bank Treasury and Strategic Asset–Liability Management
• Part IV: The Future of Banking: Strategy, Governance and Culture
• Part V: Case Studies: Analysis, Coherent Advice and Problem Solving

As always, the aim is to remain accessible and practical throughout, and I hope this has been achieved. Comments on the text are welcome and should be sent to the author care of John Wiley & Sons (Asia) Pte Ltd.

ACCOMPANYING WEBSITE

This book features a companion website, featuring a range of models, policy templates, teaching slides, and model answers. Each item is referenced to a specific chapter in the book. Full details of all the files on the website and login information are given in Chapter 20.

ADDITIONAL CONTRIBUTORS

During my career in the City I've been privileged to work with some great people, people who are technically expert as well as fantastic team players and all‐round good eggs to boot. These people are named elsewhere in this Preface. Some of these very same people I have strong‐armed into collaborating with me on writing projects, with results that you the reader are now benefitting from – as I have done – as their banking acumen and skills in written articulation are presented in this book. Various parts of the material you see here and on the associated website have been contributed by the top writers in banking, and for that my everlasting thanks to Chris Westcott, Ed Bace, Polina Bardaeva, Enrique Benito, Doo Bo Chung, Peter Eisenhardt, Adam Ginty, Rita Gnutti, Kevin Liddy, Zhuoshi Liu, Jamie Paris, Juan Ramirez, Soumya Sarkar, Christian Schmaltz, Cormac O’Connor and Graeme Wolvaardt. It is a privilege and a pleasure to know and have worked with such fantastic, genuine people.