Banks are institutions where miracles happen regularly. We rarely entrust our money to anyone but ourselves and our banks. Despite a very chequered history of mismanagement, corruption, false promises and representations, delusions and behavioural inconsistency banks still succeed to motivate us to give them our money. Partly it is the feeling that there is safety in numbers. The fashionable term today is “moral hazard”. The implicit guarantees of the state and of other financial institutions move us to take risks which we would, otherwise, have avoided. Partly it is the sophistication of the banks in marketing and promoting themselves and their products. Glossy brochures, professional computer and video presentations and vast, shrine-like, real estate complexes all serve to enhance the image of the banks as the temples of the new religion of money.
But what is behind all this? How can we judge the soundness of our banks? In other words, how can we tell if our money is safely tucked away in a safe haven?
The reflex is to go to the bank’s balance sheets. Banks and balance sheets have been both invented in their modern form in the 15th century. A...
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