Italian CEO says retail banks need time to adapt
Yesterday I spoke to Antonio Vigni, CEO of Siena-based Banca Monte dei Paschi di Siena, the world’s oldest bank. Below are two video clips of Vigni answering questions on lending in Italy and the hot topic of regulation.
In this first clip, Vigni says bank lending is holding up in Italy and he sees improvement.
In the next clip, Vigni says that retail banks may need more time to adapt to the brave new regulatory world.
Risk Takers Anonymous
An eminent scientist who studies the brain and economics thinks that the financial industry in essence became addicted and insensitive to both risk and reward.
“The finance industry was adapting to the level or risk,” said Gregory Berns a professor at Emory University in Atlanta and a leader in the relatively new field of neuroeconomics.
“It is an insidious process, and you are not aware of it. You are addicted to returns, you are addicted to risk, you are addicted to cocaine – its all the same as far the brain goes.”
The part of the brain which is rich in dopamine is active in giving people a buzz when they do something they value. Getting money can give this buzz, as can taking risks. But sadly shortly after we reach a level of wealth we need more to get the same kick, just as we become used to the risk taking which formerly would have been exciting and might have caused us to trim our sails.
Berns describes the process of becoming habituated as like adjusting to a new level of light, at first it seems bright but then you adjust.
“You get used to it. The brain is constantly gauging relative amounts. The brain does not have a mechanism ever to be satisfied.”
The implication he said, is that the trader, banker or even small investor needs some structure from outside to impose limits.
from James Saft:
Shocker – Davosians vote against more regulation
Duncan Niederauer, chief exec of NYSE Euronext, told a panel here at Davos that rather than inventing a whole host of new regulations, we'd be better off focusing on existing means of bringing order to markets, specifically taking a page from the exchanges books by having central clearing and more price transparancy for derivatives and off-exchange structured products. I think he's actually got a great point about clearing and better price information, but I can't see this as being anywhere near bringing regulation up to scratch.
The response from others on the panel was similar.
Nourial Roubini of NYU - "The ideology of the last decade was self-regulation which means no regulation. Reliance on ratings agencies with massive conflicts of interest.
"If we don't want a backlash against trade we have to have prudential regulation of the financial system."
Obama economic advisor Laura Tyson -
"We need regulation, we've tried self regulation and it doesn't work. Psychology tells us that in a highly competitive game the insensitivity to risk grows. It's like a drug addiction problem. They got so much pleasure that they simply stopped paying attention to the risk."
At the end of the panel they held a vote on Niederauer's idea and it won 71 percent to 29. Whether that was a vote for the sensible parts of his idea or for making that the whole of the regulatory effort I leave you to decide.
from James Saft:
Stephen Schwarzman’s hair of the dog
So what is Blackstone Group chairman Stephen Schwarzman's prescription for solving the banking crisis?
More leverage and less transparency, apparently.
Schwarzman told a panel at Davos that you can't mandate higher levels of bank capital at the same time losses are mounting and that mark-to-market accounting needed to be changed.
"You need lower capital. Do something with fair value accounting which is exacerbating things . . . We have to add more leverage to the system." He further took issue with what he described as a "fixation on transparency" and said "We have to use regulators to schedule out losses." By that I presume he means keep the bank on life support until they can make enough to absorb their losses. It did work in the 1990s with some prominent U.S. banks, but...
Laura Tyson, an economic advisor to the Obama administration, didn't seem to be buying in to the more leverage less disclosure meme.
"Nobody trusts the private system, why should they trust them?" she said. She also mentioned the Swedish solution, which you may remember imposed some pretty tough conditions on bank shareholders. She said that voters would be watching who made money out of bailouts and would be concerned by "compensation and dividends."
