Structural causes of the global financial crisis

This paper from University of Massachusetts focuses on the ultimate cause of the global financial crisis. It suggests that, the flawed institutions and practices of what is often referred to as the New Financial Architecture (NFA), the globally integrated system of bank conglomerates and the so-called ‘shadow banking system’ of hedge funds, investment banks, and special investment vehicles, are responsible for the global financial crisis.

It traces the evolution of NFA and discusses its structural flaws. Key issues covered are: (i) that the efficient capital markets theory accepted by regulators, even though weak, is misleading; (ii) the incentives embedded in the NFA, which lead to excessive risk taking; (iii) that mortgage-backed securities, central to the current boom, are too complex to have been priced right, and that they thus eventually collapsed when the boom-time optimism faded; and (iv) a high generation of leverage by the NFA.

Paper can be found here


Happy New Year 2009

Happy New Year 2009 to everyone. Some pics of celebration and welcome of the New Year 2009 in my favourite cities.

London New Year 2009

New York
New York New Year 2009

CBI/PwC Financial Services Survey

Supplement to our doom and gloom diet, CBI/PwC released financial services survey. The highlight from my perspective is on page 8 about the depressing mood of securities traders in relation to their business. Particularly a negative balance statistic of -92%.

Click here to get the survey publication.

Global Financial Services Supervision Systems

Ever wondered about what different approaches are out there to regulate and supervise the financial services? Considering the environment these days and anticipated regulatory tightening, there is an excellent piece of thought leadership in this space. The Group of Thirty G30, released its new report “The structure of financial supervision – Approaches and challenges in a global marketplace”. The report reviews 17 regulatory systems (ie, The jurisdictions reviewed are Australia, Brazil, Canada, China, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, Qatar, Singapore, Spain, Switzerland, the United Kingdom, and the United States.)

It assesses the four approaches to financial supervision currently employed
across the globe (Institutional, Functional, Integrated, and Twin Peaks); and describes the key design issues of each supervisory model, illustrates how each has been implemented
in practice, and assesses the strengths and weaknesses of each approach.

I cannot share the full version due to copyrights issue, but the executive summary can be downloaded here

Ernst & Young 2008 Global Information Security Survey

The latest release of “Ernst & Young Global Information Security Survey” shows that a growing number of organisations recognise the link between information security and a strong brand / reputation. It covered nearly 1400 senior executives in over 50 countries, and it strongly indicates that a security incident would have a greater impact on reputation and brand than on revenues. Considering the previous results and my experience – it seems that the major drivers of information security spend are shifting from compliance to brand protection.

More importantly, it suggests that the spending is set to increase in Information Security. While, I think there will be major cutbacks in a number of existing areas and the same money will be re-channelled with more robust monitoring of the bottom line.

Survey can be found here

Lehman Brothers to be liquidated

Lehman Brothers’ 158-year old run came to a grinding halt this weekend. The biggest banking bankruptcy ever.

Perhaps this was long waited since 1999, when depression-era Glass-Steagall act was repealed? It all comes down to capital, size of balance sheet and reliance on wholesale markets for liquidity. See below for more details:

Lehman Brothers files for Bankruptcy (including European counterparties)

PwC Says Unwinding Lehman Brothers Could Take Years

Watch the LIBOR

Successful Strategy Execution – Harvard Business Review

Excellent article in Harvard Business Review on secrets behind successful strategy execution. It is illustrated through a case study, whereby restructuring yeilds immediate results but the problems (or their symptoms) crept back in – until they decided to identify and address the root cause.

Focus should not be restructuring but rather identifying what and where it goes wrong – then appropriate change implementation and management as required.

See this link for the Executive Summary (I strongly recommend to subscribe to HBR for full article)