Speech to Risk Europe May 2010
I write from Frankfurt, where I gave a speech today to the RISK Europe conference. It was an interesting time to be in Frankfurt with a bunch of risk managers. Secretary Geithner was also in town for talks with ECB President Trichet, but you wouldn’t know it from the discussions at RISK Europe. Instead, the risk managers gathered there seemed to be pretty introspective and preoccupied in figuring out how behavioral economics and scenario analysis can be used to take them past VAR and meet the growing demands on their discipline.
Links to my slides and speech are attached. For this conference, I focused on the importance that scenario analysis can play in augmenting VAR analysis, an how important it is for scenario analysis to take into consideration the role that sovereigns now play in so many parts of the market. The message is pretty simple: there are rigorous and structured ways to assess global regulatory and political trends…and it is imperative that risk managers augment their quantitative analysis with these kinds of tools if they are to avoid underestimating or mis-pricing the risks in various market and exposure segments. There is also an abbreviated history of the Basel regulatory capital framework.
The slides show a time series of OTC derivatives transactions volume (measured in gross market values).
Speech to American Society of International Law – March 2010
In March, I had the good fortune to participate in on a panel at the annual meeting of the American Society of International Law. I greatly enjoyed spending the day with so many thoughtful academics, practitioners, and students who care passionately about international law.
My talk was broad and covered some aspects of the financial crisis, up to and including the eurozone/Greece situation. I also made the argument that while informal agreements and working arrangements in the G20 and specialized regulatory groups can achieve much, in at least two areas I believe more formal arrangements will be needed: cross-border exchanges of information and cross-border resolution of failed banks.
The full text of my speech appears here: ASIL remarks
It will also be published in the formal proceedings of the annual meeting by the ASIL.
G20 Sherpa meeting preview
Quietly tomorrow, while Europe’s trading markets are closed, while Chinese and American officials haggle over market access and exchange rates in Beijing, sherpas from the Group of Twenty (G20) will gather in Canada. The media will likely focus on the meetings in Beijing and market activity from Asia to America. But the regulatory policy directions emanating from the Canadian G20 meeting will have greater strategic significance for firms subject to financial regulation and companies that rely on them for access to capital. The week will end with an OECD ministerial in Paris and the latest projection regarding global growth. Do not expect to hear any soundbites associated with early exit from emergency fiscal and market support measures next week.
This note provides trend analysis regarding key issues consideration in the G20 on Monday, in the context of existing market and regulatory policy conditions. The starting point for analysis are the actions taken this past week in Japan, Italy, Brussels, Washington, and Berlin that set the stage for this week’s various meetings. Some of those actions would have attracted front page attention from the media in normal times; but these are not normal times.
The overall picture that emerges is one of continued convergence on a range of substantive policy issues. At the same time, the incentives for sovereigns to act together continues to deteriorate as the European sovereign debt crisis grinds on. Consequently, it is a situation which benefits the first mover, in the hopes that others will follow the lead. For the foreseeable future, volatility in the policymaking community will thus remain high, as success in driving political consensus will generate tangible economic benefits at home at a time when those economic benefits are most needed.
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Europe’s leaders sadly share much in common with BP this weekend. Both large groups are engaged in a race against time to cap a noxious situation spewing out of their control. They are attempting to execute a series of technical maneuvers, using processes never tried before, under extremely high pressure and a withering 24/7 media spotlight that feeds extremism, rumor and fear. The consequences of failure will be devastating not only to the large group in question but to the broad environment around the spill for a long time to come. Even with successful actions by Sunday night, there will be innocent victims as well as not-so-innocent injured parties. This note steps back from the screaming headlines to assess the actual range of authority available Brussels and asks some hard questions for careful consideration before Asia opens for trading on May 10.
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Global Financial Regulation: The Essential Guide, Howard Davies and David Green (Polity: 2008)
Trying to figure out how the global regulatory system works and where it came from? Trying to de-code the alphabet soup of global groups setting regulatory standards for the financial system at home and abroad? Look no further. Howard Davies and David Green have written the book for you.
There are few more qualified people than Davies and Green to guide the non-expert through a maze of regulators, central banks, and finance ministries that have often over-lapping and confusing roles in setting regulatory standards at the global level. With the G20 process gaining speed and policymakers poised to make major decisions on the navigation system structure for the global economy this year, a good understanding of the players, their roles, and their histories is essential to making sense of the various proposals and players. Read More >>
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