The whiteness of the whale
I don't think there are many of us who can look at the horror that is unfolding in the financial services industry as I write this month's editor's letter and not wonder - at least a little - at it.
Whether we consider recent events from the vantage point of the subprime mortgage industry's losses, the proliferation of sophisticated financial products, or the collapse in confidence in investment and commercial banks taking place at the moment, the scale of the crisis is substantial, and awe-inspiring.
It is easy to get lost in the immenseness and intensity of this thing that has struck us. Ishmael, the narrator of Herman Melville's Moby-Dick, managed to keep his head and survive by floating on an empty coffin after Captain Ahab was killed by the whale and the ship destroyed. Many in financial services will, no doubt, be able to relate to his plight at a personal level.
But the reality is that, while our own ship might be taking on water and have quite a few broken bits, we are still afloat. And I'm convinced that, if the Societe Generale incident reawakened a broader interest in operational risk back in January, the events of the past few weeks will positively energise it.
"I think risk management controls either disappeared or were weakened. I think there was a determination to grow without the right controls in the financial sector of the business," said Hank Greenberg, former chairman and chief executive officer of AIG, in an interview on CNBC during the days in which his lifetime's work - he'd resigned from the business in 2005 - teetered on the brink of collapse.
Greenberg's assessment of what went wrong at AIG is echoed by other executives at dozens of other firms. While pursuing profits, and their own bonuses, financial services executives failed to assign the required importance to systems and controls, risk management and common sense. No matter who I speak with, there is a real consensus that, for the firms that are left, these things will matter now more than they ever did before.
An additional challenge over the coming 18 months will be managing the regulatory backlash. Already, it has begun, with legislators and the press baying for blood, demanding answers, preparing for attention-grabbing come-uppances. We can only hope that in their zeal for retribution, they too heed the moral of Captain Ahab's pursuit of the great white whale.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Market players warn against European repo clearing mandate
Regulators urged to await outcome of US mandate and be wary of risks to government bond liquidity
Esma won’t soften regulatory expectations for cloud and AI
CCP supervisory chair signals heightened scrutiny of third-party risk and operational resilience
BPI says SR 11-7 should go; bank model risk chiefs say ‘no’
Lobby group wants US guidance repealed; practitioners want consistent model supervision and audit
Esma supervision proposals ensnare Bloomberg and Tradeweb
Derivatives and bonds venues would become subject to centralised supervision
Industry frowns on FCA’s single-sided trade reporting efforts
Buy side warns UK attempt to ease Mifir burden may miss target; dealers aren’t happy either
One vision, two paths: UK reporting revamp diverges from EU
FCA and Esma could learn from each other on how to cut industry compliance costs
Market doesn’t share FSB concerns over basis trade
Industry warns tougher haircut regulation could restrict market capacity as debt issuance rises
FCMs warn of regulatory gaps in crypto clearing
CFTC request for comment uncovers concerns over customer protection and unchecked advertising