Sherlock Holmes and the Mystery of Why Experience Beats Genius in Banking

At the start of 2012, the eurozone was in a bit of a pickle. Greece, Spain, Italy, and Portugal were viewed as running unsustainable public debt levels, but it was Greece that attracted the most negative sentiment, with some commentators suggesting it should be ejected from the euro. (BTW how nice to see Greece awarded an investment-grade credit rating last month! 🙂).

Some investors, who’d made the mistake of assuming the euro was an economics project (when everyone knew it was first-and-foremost a political project) feared the euro’s demise. Sovereign bond yields rose. It was a genuine ongoing stress event…

Then, on 26th July 2012, Mario Draghi, President of the European Central Bank (ECB), spoke softly but was seen to be carrying a big stick:

“The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

Markets took him at his word. The ECB’s Outright Monetary Transactions (OMT) programme - essentially a commitment to buy struggling countries’ bonds - was announced. The irony? The ECB barely had to use it. Draghi’s statement alone did the trick, and bond yields fell.Draghi’s success wasn’t just about having the right tools; it was about knowing how and when to use them. Yet, in finance, we sometimes overlook this lesson, thinking that theoretical or assumptions-based academic knowledge is sufficient to navigate high-pressure situations.

Genius vs. Experience: What makes a good banker?

The finance industry sometimes romanticises the idea of the “young prodigy banker,” the brilliant mind capable of parachuting into any crisis and solving it through sheer intellect. This image is reinforced by stories of exceptional individuals who rise quickly through the ranks, making bold decisions and achieving remarkable success at a young age. Does this ideal overlook the importance of experience, judgment, and the ability to manage uncertainty over time?

Imagine this:

1. A rookie.

2. An Olympic fencing champion with years of competition experience.

They’re given the same épée, the same coaching, and the same strategy. Yet, the junior’s performance won’t match the veteran’s.

Why?

The rookie lacks the muscle memory, tactical instincts, and endurance built through years of competition. Most importantly, the rookie hasn’t yet learned how to read an opponent, anticipate moves, and adapt when the match doesn’t go as planned.

Learning by doing

Champions train, yes…they also develop instincts, built through years of experience under pressure.

But ignoring this, we sometimes put 30-year-olds in charge of high-value transactions. We hand influence, and therefore to some extent power, to management consultants who have never actually managed real risk. Is this logic flawed?

Yes, it is. If experience is as critical in banking as it is in elite sports, why would we pretend otherwise?

In Bounce: The Myth of Talent and the Power of Practice, Matthew Syed writes:

"For years, knowledge was considered relatively unimportant in decision-making… This was the presumption of top business schools [and successive UK governments, by the way].... They believed they could churn out excellent managers who could be parachuted into any organisation and transform it through superior reasoning…. Experience was irrelevant, it was said, so long as you possessed a brilliant mind and the ability to wield the power of logic to solve problems.”

This is, of course, utter nonsense. As I wrote in the Afterword of the first edition of The Principles of Banking, “An understanding of the core principles of banking, acquired over time, is an essential prerequisite of successful banking. Or as Mr Syed wrote, “Successful decision-making in any situation characterised by complexity - whether in sport or in business - is propelled not by innate ability but by the kind of knowledge that can only be built up through deep experience.”

Amen.

Mastery in banking takes time (and that’s a good thing)

True mastery in banking typically takes many years. A useful analogy is a hospital consultant: it’s uncommon to find one in their 30s or even 40s. (The average age of a UK hospital consultant is 49). This reflects the extensive experience needed to build up the deep expertise required for such a critical role.

Banking is no different. It requires the ability to apply technical skills, regulatory knowledge, and risk assessment within the context of human relationships. Mastery of these areas requires gradual, steady competence-building. Decisions made hastily or driven by overconfidence often stem from a lack of expertise and lack of sound judgement, resulting in overlooked risks and errors of incompetence.

Consider the example of an executive who joined a major UK bank in 1999 as its Chief Operating Officer, following a career in retail. (Retail as in supermarkets, not retail banking). After a few years, the executive was appointed CEO, and under his leadership, the bank adopted a growth and market-share strategy, investing in higher-risk sectors like commercial real estate and unsecured corporate lending. This rapid expansion came with equally rapid risks, with aggressive lending practices becoming a hallmark of the bank’s approach.

When the 2008 global financial crisis hit, the weaknesses of this strategy became clear. As Quentin Letts wrote so memorably in his brilliant polemic, Fifty People Who Buggered Up Britain, “They were bull-market innocents caught short by change.” That CEO had never experienced a bear market, hadn’t experienced working (in a bank) through the 1990-91 housing downturn or the 1994 surprise US Fed rate hike. The bank’s overexposure to bad loans and high-risk investments led to its collapse. The institution was acquired by a larger competitor but ultimately the merged entity required a taxpayer bailout anyway.

Caught short by change

Experience leads to second-order thinking

As this example above shows, decisions made without a thorough understanding of risks can have dire consequences. Second-order thinking helps avoid these pitfalls by encouraging a deeper evaluation of the potential long-term outcomes of any decision. In The Principles of Banking, I wrote:

“Sound judgment requires knowledge and experience, of the right kind, if it is to be exercised during both good and bad economic times. This is not always a core belief of those in senior management.”

For instance, an inexperienced banker might assume that interest rates will rise simply because the forward curve suggests it or an economist predicts so. This is first-order thinking, making decisions based on the initial reaction to trends.

Second-order thinkers, however, ask:

What needs to happen for this to be true? What could change to invalidate this assumption? And what’s my Plan B if the opposite or something completely different happens?

They understand the broader context and, critically, the assumptions driving their decisions. By continuously questioning and reviewing their reasoning, second-order thinkers can adapt when circumstances change, leading to more informed and resilient decision-making

Had the decision-makers at our bank in question taken a more second-order approach, questioning the underlying assumptions of their aggressive strategy, they might have avoided the strategic errors that contributed to their demise in 2008. (They weren’t alone of course - more than one UK/US/European bank went bust during 2007-09, and a few more since then up to 2023. But many hundreds, indeed thousands, of banks didn’t go bust during this time).

This is where having continuous access to deep, actionable insights becomes critical. What if banking and finance knowledge had a 24/7 hotline? That’s exactly what Moorad Choudhry AI does! Ask anything from balance sheet management to risk analysis, and get instant, actionable insights. You can try the ChatBot free for 3 days, or subscribe monthly.

Seniority doesn’t necessarily equal expertise: focus on competence

We cannot become what we want to be by remaining what we are, and mastery in banking isn’t just about longevity. It’s about breadth as well as depth of experience. Those who actively seek challenges beyond their expertise can cultivate deep, multidimensional knowledge that will set them apart.

The more you invest in pushing beyond your comfort zone, the greater the likely returns. Furthermore, true progress sometimes requires unlearning things and always keeping an open mind. For example:

• Transitioning from retail to corporate banking (or vice-versa) enhances financial analysis, risk assessment, and relationship management for markets that exhibit different risk characteristics.

• Being involved in high-stakes projects, such as implementing digital payment systems or a new ALM platform, builds confidence and professional visibility.

• Attending global finance conferences or taking on international assignments fosters valuable industry connections across different operating environments.

• Moving into fintech-focused roles ensures professionals stay ahead of trends like blockchain and AI.

• Shifting from traditional lending to investment banking, or vice-versa, sharpens analytical and decision-making skills.

• Transitioning into a sales role teaches relationship building, strengthens adaptability, and prepares professionals for leadership

Show the way, and walk it

JPMorgan CEO Jamie Dimon’s career is a landmark example of how stepping outside one’s comfort zone can lead to long-term success. Early in his career, he worked closely with Sandy Weill, a key mentor who helped shape his approach to leadership. Dimon played a crucial role in building Citigroup but was pushed out in 1998. Instead of taking an easy route or jumping into another large role immediately, it would appear he chose his next move carefully.

At one point, Jeff Bezos offered him a leadership role at Amazon, but Dimon declined, believing his strengths were better suited for banking. Instead, he took on the challenge of turning around Bank One, at the time a struggling financial institution. He revitalised the bank, and when JPMorgan Chase acquired Bank One in 2004, Dimon became its president and later CEO in 2005. His leadership through the 2008 financial crisis solidified his reputation as one of banking’s most capable executives

Dimon’s journey demonstrates the value of taking calculated risks, embracing new challenges, and developing a broad skill set. Rather than remaining in a single niche, he actively sought diverse experiences, from risk management to corporate finance, which ultimately prepared him for the top role at JPMorgan Chase. His success illustrates the benefits of long-term thinking, adaptability, and a willingness to tackle new and different problems.

The long game

As my friend Colin Johnson always likes to say, “Every day is a school day!” He’s spot on. The most successful bankers understand that growth is an ongoing process, shaped by both successes and failures. They seek out new challenges, question assumptions, and cultivate clear thinking. Or as Sherlock Holmes said in The Red Circle:

“Education never ends, Watson. It is a series of lessons, with the greatest for the last.”

“Further reading….”

In banking, having technical knowledge is one thing, knowing how to apply it under pressure is another. The Principles of Banking includes real-world examples, technical frameworks, and universal takeaways that professionals can immediately apply in their day-jobs. But no need to take my word for it:

"The Principles of Banking is easily the most important text for anyone in banking today and should be required reading for all personal development plans. When I was a regulator at the UK Financial Services Authority, managing the Change In Control team, I was responsible for assessing and granting regulatory approvals for complex banking transactions, such as Virgin Money’s takeover of Northern Rock. I relied heavily on Professor Choudhry’s text as a reference throughout the banking license approval process.

“Since then, I have referenced his book often, as a guide continuously during my career in banking as regulator, consultant, investor, CRO and now on the strategy/commercial side, and crucially while setting up a new bank and going through the bank license approval process myself.”

—Nihar Mehta, Chief Corporate Development Officer, Monument Bank Ltd, London

For beginners and veterans alike, this book will act as a reference point, guide and friend.