Latilla's Blog: Operational Risk related thoughts and discussions

IMF vs. Humanity: A Parental Approach to Risk Management

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Last week as reported in the Wall Street Journal and by Reuters, there was the universal condemnation of the efficacy of Basel III by the IMF and the U.S. Treasury. The IMF experts considered it not far-reaching enough to offset another global recession and view the practicality of a global body imposing levies on individual nations as unworkable. The U.S Treasury has dropped the notion of an imposed levy for its larger banks just prior to the Congressional elections and has always viewed a levy as a way to pay back the American taxpayer rather than as a buffer for future disasters. It is the GRC vs. ERM and the qualitative vs. quantitative argument all over again. The IMF and EU want to impose an overarching regulation from without to compel financial institutions to tow the line and change its way of thinking and the U.S wishes to see risk management taken care of from within by seeing results as vindication that it has improved its compliance procedures without external pressures.

So there we have it. Not unlike the League of Nations eighty years ago, unless there is unity of spirit and intent then the whole notion of universal goodwill and strong regulation will go out of the window. And we know how that ended, don't we? But the issue here is not whether one method is right and the other unworkable, it is the human spirit naturally resisting both change and authority, as any child does, in favor of having the ability to say, "told you so" or singing with gusto, "And I did it my way." 

We have been seeing this scenario for years. Even before the Big Bang as I think of it, global risk assessment was always done on a wait and see approach. Much was suggested but little was actually put in place. Now we are adopting the same game plan where one side proposes self-monitoring as a political and economic reality and supporting the indomitable human forces of profit and individuality and the other recognizing those natural forces and buckling under the pressure. Similar to a beleaguered parent wishing it could impose its natural authority but accepting the fact that a quiet baby is easier to deal with than a bawling one in the supermarket checkout and placating it instead of correcting.

 Now I am not saying that the U.S. Treasury is a bawling baby but it is doing what individuals do in their terrible twos and resist authority even if it is in their own best interests...eventually. But I am saying that an ineffectual parent does more harm than good and in the end the kiddie doesn't learn and the rest of us have to suffer the hissy fit close up.

Of course as we grow up we develop our own styles of dress, music, speech...and banking and who is to say one way is better than the other? But I must and do ask should the EU and IMF assume that something is better than nothing and carry on limply in the hope that something small, and generally accepted as ineffectual, will become the norm and then perfectly acceptable? Or does it assume a more unpleasant parental role and apply tough love and suffer the immediate consequences? Either way, crossing their collective fingers and doing as little as they can all get away with for the sake of an easy life never, ever works.