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.