Leaders must step up to avoid excessive risk taking in financial institutions
Bank reforms will not stop banks from taking excessive risks in the future according to an academic report by Professor Simon Ashby (i), released today. He says that, without a cultural change, excessive risk appetite will continue.
Twenty senior risk professionals from the banking industry took part in the study. They placed much less emphasis than external experts (who have predominantly reported before) on economic and market factors, such as low interest rates or the growth in securitisation, and much more on human and social aspects of the crisis within the institutions and the regulatory machinery. Instead, they saw inappropriate risk
We’ve just had the first opportunity to discuss the findings of our research with a group of clients. A lively and enjoyable discussion over breakfast reminded us of the power of thinking together.
Testing the key themes in the report against the challenges facing our clients in their businesses today, it was exciting to see a consensus emerge that brings together the four themes in a compelling story. One that’s not only relevant to the current challenging market conditions but also, as someone said, a model for the next five to ten years.
Nassim Taleb’s 2007 book ‘The Black Swan’ has been back in discussion recently as people debate whether the economic crisis fits the category of ‘black swans’ – something no-one could have predicted, but of which a single occurrence invalidates previous beliefs (such as ‘All swans are white’). Did anyone really predict the banking crisis? Certainly no-one acted to prevent it.
Taleb’s thesis reminds us of what someone called ‘the risk of risk departments’ – by having a department devoted to risk, you create the illusion that you have dealt with it. In fact, what often derails strategy is what nobody is
‘Strategy evolution: adapting to a new world’ brings together the shared intelligence of 45 of today’s leaders on how to make your strategy work in the new business environment – the culmination of our research, and precious time kindly given up some very busy leaders to share their experiences of the new risks to successful strategy execution.
During these frank conversations we were perhaps surprised to find little evidence of the desire to reduce their exposure to risk. Instead, we found a growing awareness of the need to be open to all the new opportunities present in the changing