In the wake of the credit crunch, and with the significant failures exposed around corporate governance, the Financial Reporting Council commenced a review of the effectiveness of the UK’s Combined Code. A progress report and summary of the consultation is available here. However some of the key points from a performance and risk management perspective Read More
There has been many bad news days for many banks over recent months however the last few days have been particularly painful as bankers lined up for a very public (some may even say long overdue) whipping. For HBOS, and its’ former CEO Sir James Crosby, opening the papers today will be particularly harrowing given the recent revelations from Mr Paul Moore.
Ok it is the answer if you are a politician trying to capture popular appeal.
But to ‘fix’ the current credit crisis, Mr Obama and Mr Brown (who has the bigger job of saving the world!), this is not the answer.
Setting a arbitrary level of salary and bonus payment, unrelated to market forces, will not help overcome the problems the industry faces. Right now the industry needs to retain and attract the best and brightest not discourage them.
Perhaps this story, coming out of Davos, is not a surprise given the current environment. Click here to read the full story. Over the next few weeks we plan to write more about the relevance of the Risk-based performance methodology in today’s environment. If you have any questions you would like answered, or points you Read More
Speech by Adair Turner, Chairman, FSA, The Economist’s Inaugural City Lecture21 January 2009 It is stating the obvious to say that over the last eighteen months and even more so the last four the world financial system – and particularly but not exclusively the world banking system – has suffered a crisis as bad as Read More
The package of measures announced yesterday by the Chancellor are not designed to protect the banks as such. They are designed to protect the economy from the banks. Click here to read Mervyn King’s speech to the CBI Dinner, Nottingham, on 20 January 2009. Click here for coverage on ft.com
Ben Bernanke, an acknowledged expert on the 1930’s depression and current Chairman of the Federal Reserve, delivered a lecture in memory of Josiah Charles Stamp, an alumnus and former governor of London School of Economics. The speech ‘The Crisis and the Policy Response’ gives insight to emerging thinking around the Credit Crisis and potential policy responses that Read More
In the wake of the credit crisis that has swamped both the financial services industry and the ‘real’ economy, many are seeking to understand the causes of the crisis and what steps need to be taken to move forward from it.
Whilst there have been many factors that lead to this crisis, we believe that there are two critical factors that significantly contributed to both the crisis and the recovery. These two factors are;
- Poor quality of management information, particularly risk related information.
- Failure to act appropriately on available management information.
The danger of spreadsheet errors and the risk it poses to organisations was exposed in this article.
Due to an spreadsheet related error, or should that be human error whilst in control of a spreadsheet, Barclays are at risk of having to purchase and take on the positions of approximately 179 contracts that they do not want due to a hidden column in a spreadsheet
In the wake of one of the most turbulent periods in the history of the financial services industry many politicians, regulators and members of the public have cited the prevailing bonus culture, in particular, excessive bonus as the root of all evil. This feeling is such that as governments around the world have nationalised banks, they have also explicitly sought to control bonus structures and payments. However, we believe this is an oversimplification of the issue which in many cases is designed to make headlines rather than add sensibly to the debate. The bonus culture, both in the City and on Wall Street, is not the real problem. The real issue is a pervading bonus culture which is focused on ‘A players’ rather than on a balanced set of ‘A positions’
With hindsight many have rightly argued that the credit crunch has fundamentally been caused by a failure of risk management. A failure to understand the risks and exposures within the portfolio of assets held by financial services companies. Understanding the quality of assets and liabilities on these companies balance sheets is now a major industry challenge. We can all nod wisely whilst expressing these sentiments with the benefit of hindsight.
However on the day that has seen the disappearance of two major wall street players, it is worth reflecting on the value of foresight, or more specifically, on how another wall street player appears to have foreseen the looming subprime crisis and managed its positions accordingly.
An interesting discussion about Risk and Reward – The safest form of diversification is to avoid the herd you have to think and act differently from other investors. This same conclusion can be applied to companies.
JPMorgan Chase provided evidence of more turbulence in financial markets, warning yesterday that stormy credit conditions had forced it to take a $1.5bn (£785m) writedown on mortgage-backed assets in July. Full story from the FT here
The FT reports Credit Suisse is close to agreeing a potential £5m settlement with the UK financial watchdog over lapses in its systems and controls relating to a trading scandal that generated a $2.7bn (£1.4bn) writedown for the Swiss bank earlier this year. Click here for more
Under the headline ‘European banks harder squeezed by credit crunch than US rivals’ this story provides some insights into the relative losses suffered by European and US banks. It also raises a question about European Risk management practices. Given the apparent success of US banks and brokers selling subprime securities to Europe, it raises the question: are European risk management practices weaker than those in the US? Or were the US relatively lucky? Or is it too early to say?