Aline van Duyn, writing in the FT over the weekend, says bankers are suffering from the Lake Wobegon effect, something dreamed up by radio talk show host Garrison Keillor who reports from his fictitious Minnesota town “where all the women are strong, all the men are good-looking, and all the children are above average”.

“Well, according to senior regulators, they revealed that banking is also subject to
a “Lake Wobegon” effect.
“Banks are very good at working out models that show potential losses on loans, under many different economic scenarios.
“But, according to regulators, all the banks assume they will make fewer losses than average.”
This has an amusing echo in retail banking. At the BAI Retail Delivery Conference (upgraded a few years ago from a mere Show to a Conference) speakers are apt to note that banks all assume above average growth with completely standard, solidly in-the-box strategies. As a few speakers have pointed out, to grow faster than average, or faster than the economy, a bank needs to take market share from competitors. And this is difficult to accomplish if your products look exactly the same as the stuff offered by the guy down the street. Yet bankers persist in planning for above average growth with completely average products.

She concludes: “Collective delusion has to be stamped out by accepting that average – not better-than-average – is the norm.”

Michael Porter, who spoke at the last BAI conferences which I attended, couldn’t have said it better.

It does remind me of a comment that John Kenneth Galbraith made years ago about U.S. Treasury Secretary C. Douglas Dillon that “nobody ever recovers from being a banker.”

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