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Regulating Wall Street Co-Editor Ingo Walter presented a live webinar on March 31, 2011, titled "Inside Job: Reputational Risk and Conflicts of Interest in Banking and Finance."
]]>Charles D Ellis spent 10 years writing The Partnership, his much praised 2008 effort to capture the "culture" of Goldman Sachs, and so Cohan's latest effort seems a rush job to catch the last of the lingering public rage against the big banks that played so rough during the financial crisis.
Cohan interviewed former senior partners, who turned out to be much more loquacious than expected for a firm known for its secretive ways.
The glitzy New York version in Vanity Fair included a lengthy, pre-publication excerpt covering 1989-1999 when the firm had five chief executives. This was truly a messy period in the firm's history, full of juicy bits for gossips to savour.
But the piece never mentioned that these were very difficult times in both Wall Street and the City of London, when firms changed their business models drastically to survive and a great many distinguished names either failed or disappeared into mistaken or unwanted mergers.
Goldman is one firm that sailed
through this period, despite its management changes and
other tumultuous events, without slowing down much at all.
Indeed, it emerged after its initial public offering in 1999
as the unquestioned leader of the global capital markets
industry.
read the full opinion-editorial on efinancialnews.com
Watch the interview on CNBC.com
We would be far better off if the powers on Wall Street would remember this lesson.
Many players on Wall Street and in corporate America in the 1930s hated the new regulatory regime imposed on them.... But in the long run...the new regulatory regime was one of the best things that ever happened for Wall Street and corporate America. Why? Because it created confidence among investors--then and in the decades to follow--that Wall Street finally had become a level playing field.
With the big banks under the boot of the regulators, tucked up with tougher capital ratios, trading restrictions and deferred incentives to rein in recklessness, some bank chief executives and academics have called for similar restrictions on the "non-bank monsters" of the shadow banking system where dangerous, unregulated risks are said still to reside.
A shadow banker is anyone who participates in the lending of money or its near equivalent. These would include financial intermediaries, off-balance-sheet investment vehicles and hedge funds, as well as institutional asset managers.
Altogether, global institutional investors managed about $150 trillion of securities and derivatives in 2009, compared with about $95 trillion for all banks.
But the idea that the next meltdown will occur in the widely distributed shadow banking sector is nonsense, now that its riskier aspects have been addressed.
The five systemically important US non-bank intermediaries - investment banks - were dissolved by the crisis: Lehman Brothers failed, large banks acquired Bear Stearns and Merrill Lynch, and Morgan Stanley and Goldman Sachs turned themselves into banks. The Federal Reserve now regulates them all.
Read the full opinion editorial on eFinancialNews.com.
]]>Webinar Description: Banks, ratings agencies, insurance companies, policy makers and regulators are a few of the actors grappling with questions surrounding the balance between market discipline and market regulation in controlling conflicts of interest and reputational capital.
Professor Walter is the Vice Dean of the Faculty and Seymour Milstein Professor of Finance, Corporate Governance and Ethics at the Stern School of Business, New York University.
Professor Walter will talk about some managerial requisites for dealing with both reputational risk and conflicts of interest. The webinar aims to discuss:
This free hour-long webinar is presented for the Professional Risk Managers' International Association and is sponsored by NYU Stern's Master of Science in Risk Management for Executives.
Register to attend the webinar]]>Nothing about the financial crisis has done more to outrage the public and fuel reform than the drumbeat of bankers' pay announcements. Pay levels at Wall Street's top 25 banks reached a record high of $135bn last year, with employees' share of revenue rising to 32.5 per cent. While shareholders may have reason to object, the real concern for regulators and taxpayers on the hook for the next bail-out is not the level of pay, or how profits are divided between employees and shareholders, but rather the risk incentives that bank pay creates.
Reports of increased use of deferred compensation are cold comfort if it is in the form of stock, because as long as government guarantees are underpriced, the value of the stock increases with the bank's risk and leverage, so employees and shareholders are aligned in their incentives to ramp up risk. The Securities and Exchange Commission has just proposed to curb risk appetite by regulating bankers' compensation directly, requiring top executives at large banks to defer at least 50 per cent of incentive pay for three years. Regulators would do better to tackle the problem at its source, by setting deposit insurance premiums and taxes on other financial groups commensurate with the level of systemic risk they generate, and taking the risk appetite out of the equity itself.
Read the full opinion editorial in the Financial Times
The Dodd-Frank regulatory reform act in the US gives banks plenty of time to adjust to its Volcker Rule, the disallowance of proprietary trading.
The law itself provides them with lots of
wiggle-room, with implementation left to the
Next, the FSOC will have to finalise the rules (expected in June) and circulate them for discussion and push-back from lobbyists. Then there will be a lengthy period allowed for the banks to put them into effect. It could all take years.
The FSOC study acknowledges that the distinction between "permissible" and "impermissible" trading may be difficult to make. Market-making, for example, is allowed under Dodd-Frank. This is defined by the banks as trading with or on behalf of clients.
The banks say there is no proprietary trading if any position held was acquired assisting a client. Also, virtually all trading today is financed in the market, through the repo or secured loan markets, so prop trading is hard to identify simply as being financed by a firm's own money.
Read the full opinion editorial on eFinancialNews.com.