Archive for November, 2008

Finance after the Turmoil: Markets, regulation and Bruce Almighty

The rather optimistic title of this forum (… after the Turmoil) says it all: Host Ackermann sees “the dust settling”. What is the response to crisis, how can this lead to an “optimal system”?

The main challenges, according to Axel Weber, President of Deutsche Bundesbank are institution-specific approaches and all the mistakes that have been made. To the EU, this is even more pressing than to any other: we have to prevent happenings such as Lehman, *and* deal with the ones that happen in the US - including “fire sales”. The German response was a systemic approach, recapitalisation is within the remit of governments. In crisis, banks have much higher capital demands. You need to raise capital buffers, and this can only be done through the government.

Ackermann asks: Should there be one global accounting standard? Quick answer from Cerberus (apart from that this was that doggy in front of Hades, where these not the guys highly involved in M&A a la KKR?) Senior Advisor Cees Maas: Yes. Every country feels it has its own structure and therefore have their own interpretation. That is not helpful, so that within 3-4 years we might be there. Sounds like Lafontaine’s intimus Flasbeck speaking. Nice.

Thunell, CEO IFC, assumes that by spring, “we might be at an employment crisis including political tension”. It would therefore be essential to focus on the safety net for the very poor. So, Ackermann follows up with a question on if there should be an Early Warning System - distant from the aim of making money and who could this be (I had always thought that this is the role of central banks? Never mind). Weber takes this up with that there probably is “too much hope in EWS indicators” and if these would be successful, the people developing them would no longer be in academia (a bit telling, this statement from former Prof. Weber, or is it not?)

To put it politely: it probably rings true from all of the above that things in this forum were not really all to substantial. Another Erkenntnis was that Banks have departmentalised and thus minimised their risks even before the crisis, and, basically as Weber says “Banks are not Bruce Almighty” (well, bankers certainly thought about themselves in these terms, or did they not?).

Does this speak against accountability? I would say so, but then: I am not a banker. It certainly does not speak for the quality of this forum, hosted by the guy who had only six month ago the goal of reaching a 25% yield on its equity. I would have another thought here: If this is the summit of top European bankers, it’s a pretty low one. Certainly not Mount Everest. More like Kleiner Feldberg

They seem to feel this too: Ackermanns final apercu (accompanied by the famous Ackermann grin) ironically mentions Reagan’s statement “I think we should keep the grain and export the farmers”. You got it, man.


The role of the IMF

The basis of this discussion is that Mervin King suggested the IMF should become a non-resident board, IMF might be in charge of lending decisions, but the management should be much more independent. Thomas Mirow, President of ERDB, recommends to be cautious. “All that is decided, has daily impact on the people.” To think “the people will just be doing fine” would be naive (err… that’s an Erkenntnis, innit?) - regards Bretton Woods II that means that it would not be recommendable to spend too much time in creating novel institutions, more important is cooperation, regional integration. “We should not think that a college of wise man would be in a situation to govern the world.” (Laughter or jewellery rattling from the audience) Thanks for acknowledging.

On the other hand, Werder di Mauro sees that the advantages to more independence in banking supervision - towards accountability - would be logical to extend this to international institutions. I’d say she probably wants to be one of those wise women. Global vs regional coordination, it seems.

Jong-Wha Lee from South Korea sees the fundamental problem in governance and accountability. How do EU-countries report? They seem to be calling the shots. And, at the same time, a number of them are debtors. Why are Asian countries not included in decisionmaking of IMF? At the same time, “we support the increase of the financial importance, but IMF its not a regulator: without private capital influx, this will not be successful.”

Mirow makes another point towards his regional approach: A lot of banks think about leaving economies where they have made a lot of money: they should stick to them, because fundamentally they are good, and politically it would be a catastrophy. This is, what Köhler just earlier meant with  “Anstand”, making a plea to responsibility.

Seems they got the picture - or at least they are debating it?