Banking Stress Tests of limited value

Every bank can be shown to fail under certain assumptions. For example a 50 percent drop in property and/or share prices, a steep increase in interest rates etc. So you can always design stress tests that result in a positive or negative result, depending on the scenario you choose.

Succession Planning often neglected

A new study released by Stanford Business School highlights the cavalier attitude that many organisations take when planning for the eventual replacement of their executives. While we are happy to assist any client in his search for alternatives we think that the first stop in any well-managed company should be their own pool of seasoned and well-trained managers.

Monitoring Employee behaviour - a tricky problem

Despite the rapidly rising number of compliance officers and the tide of regulatory legislation the age-old problem of supervising employee behaviour keeps posing serious challenges to top management of banks and fund management firms. Surely the solution cannot be to put one compliance officer behind each and every trader or fund manager. And who would oversee these compliance officers? and so on....
Only management and an enterprise culture that are dedicated to maintain high standards of conduct can assure that incidents such as this one at are prevented. All-too often management is too far removed from the front line business, occupied with internal politics or simply not stable enough due to constant re-organisation (aided by clueless and inexperienced 'Consultants').

Superbanks - too large to fail, and too large to manage?

Bank managements often argue that losses in far-away subsidiaries could not easily have been foreseen by top management. Such may be the case when Citigroup tries to explain loan losses that may have occurred in its business in Mexico. But is this really a valid excuse? A loss of $ 400 million is quite substantial, even when measured against the bank's total assets of approximately $1.9 trillion. The loss/exposure admittedly is only 0.2 percent of total assets but seen in a different way this would mean that the bank has about 4500 loans (if they would all be the same size). Any organisation should be able to set up a management structure that can cope with this number of transactions. The management pyramid would only about three layers if each senior loan officer is in charge of about 50 loans. Impossible in this age of instant communication? Not in my opinion, one would not even need (expensive) MBA's or PhD's, just honest hardworking employees with a good pinch of common sense.

J.P. Morgan to pay $2 billion over Madoff case

Not sure if one should cry or laugh when reading headlines such as this one. How did the parties to this shameful deal arrive at the number? Did it get picked out of thin air? Is there any real proof of culpability? Since when is it a crime to conduct one's business prudently? If the regulators did not spot the Madoff fraud have they received any punishment? And why is JP Morgan management agreeing to this 'settlement' (which leaves the question where the money goes, is it just used to plug the hole in the government's budget?)

P.S.: it is gratifying to read that a 'portion' of the $2 billion penalty will be earmarked for victims of the Madoff fraud. How generous, and the state appropriates the majority of the loot for itself. Why don't the regulators make a contribution to the victims as well? I guess the only reason why regulators do not throw the book at specific JP Morgan executives is that they want to avoid questions over why they are spared jail after such a major cock-up as the failure to detect the Madoff fraud in good time.

Nothing can surprise me with respect to the ever-increasing reach that the 'authorities' give the interpretation of the ill-fated and useless money laundering laws. Soon the £5 loan that a schoolchild receives from a granny will have to be reported as 'suspicious' by anyone who has knowledge of it, for who but the 'regulators' can (with hindsight) determine what is suspicious or not? Already anyone trying to open a bank account (or even access a long-forgotten one) is basically treated as a potential criminal these days. And all this wasteful effort is expended in order to undo the results of bad laws imposed by an undemocratic process.

ECB Banking Review - Moving Deckchairs on the Titanic

More costs borne by shareholders, savers and taxpayers, more jobs for the boys - happy to be an Eurocrat in this age - and still no change to the basic rules of the banking game. Happy New Year 2014!

Mentoring and Coaching - a simple model

While some experts try to make things complicated busy market professionals need simple solutions when they reach out for independent advice about how to manage their careers. For most successful executives the most significant barrier to effective mentoring and coaching is the illusion that any outside help is superfluous. After this somewhat arrogant attitude is overcome it quickly becomes obvious even to the most self-confident person that adding another perspective can be a useful tool to overcome any personal or professional issue that arises at work.

Summers regurgitates tired old macro cliches

Guessing what the 'correct' or 'true' natural interest rate is may be a worthwhile passe temps for tenured university professors like Larry Summers but it is of little use to explain/solve the pressing economic problems of our time. Such as Unemployment or Inequality. Both have little to do with macro economic mumbo jumbo but a lot with poorly designed policies and laws.

More Women on Boards

Hector Sants may have benefited from Coaching

News that another senior finance professional - this time Hector Sants, Barclays Bank's Head of compliance - needs to take time off to avoid burn-out, highlights the pressure that staff at all levels are facing these days. This burden gets progressively stronger the more an executive moves up the ranks of the organisation. 

20-25 years ago hardly anyone in the financial markets had ever heard or seen a compliance manual, let alone a compliance officer. And the markets functioned quite well. Now the rulebooks run to thousands of pages - and are constantly 'updated' and expanded with new rules - everything is up to interpretation and everyone wants to cover his backside. No wonder that people like Sants feel the stress (ironically he helped create many of these rules!).

Another problem facing senior managers is the fact that their jobs can be quite lonely ones where they are constantly under pressure from two sides - aspiring subordinates keen to get their job or pressure from their own supervisor who wants to squeeze out a better performance from their reports.