When I taught the junior-level Economics of Money and Banking at the University of Texas in Arlington during the last century, I taught that the economic function of banks was to allocate credit across the economy effectively and efficiently.  Credit is like any other resource and cannot be wasted.  When someone takes bankruptcy and doesn’t pay their credit card or car loan, the lender has to write off the loss by decreasing his income, which decreases the value of his stock, which makes it harder to raise additional cash to make good loans to better credit risks.  It takes a lot of good borrowers to offset the losses from one bad borrower.

As the economy expanded, banks increased the number of branches.  Non-bankers thought all those branches looked like retail stores, and bankers slowly became retailers.  Loan approvals no longer considered the character of the borrower, because only his credit score mattered.  Who needs intelligent, analytical bankers when you have computers?  Banking was “dumbed-down” and became mere selling.

While it is sad, it is not surprising to read about the latest scandal at Wells Fargo, involving the fraudulent cross-selling of retail services to their customers.  Over five thousand people were fired, but — make no mistake — they were mostly retail clerks, not real bankers.  I’ll assume the vast majority were essentially young victims of a corporate culture where they were “expected” (wink, wink) to open fraudulent accounts, and “everybody” was doing it.

Please note that nobody has been charged with any crime, and I’ll bet nobody will be, which is another shame!  Remember:  Sins don’t count when done in the name of a corporation.

If I teach that course again, I will probably teach that “efficient” credit allocation is now done by computers and that banks are nothing more than retail stores, slowly devolving into risk pools.  Money and sales goals do not co-exist well over the long-term.  I just hope no student asks me who is carefully allocating credit in the economy today.