Standing at the Precipice?
What is shadow banking, and are the associated risks being properly mitigated? A summary of issues can be found in the webinar “Shadow Banking: Standing at the Precipice?” sponsored by the Global Association of Risk Professionals (GARP) on August 6, 2019. Fabio Natalucci, Deputy Director, Monetary and Capital Markets Department of the International Monetary Fund (IMF), was the first of two speakers at the one-hour webinar. He began by explaining that the shadow banking system prefers to be thought of in “less sinister” terms as “non-bank financial intermediaries” that provide services similar to, but outside of, the regular banking system. He described […]
A Good Start…
Financial risks due to climate change are receiving more attention of late, particularly for investors and regulators, but how far along are firms in addressing the issues? A report on climate risk management at financial firms tabled on June 28, 2019, sponsored by the Global Association of Risk Professionals (GARP), answers the question with its subtitle: “A Good Start, But More Work to Do.” The report is co-authored by Jo Paisley, Co-President, and Maxine Nelson, Senior Vice President at GARP. “Our sample covered 20 banks and seven other financial institutions … from across the globe. These firms have a global […]
More Leaves than Grapes?
Who says the market on old books is in a downward spiral? Luca Pacioli wrote the definitive treatise Summa de Arithmetica, Geometrisa, Proportioni et Proportionalita and published it in Venice in 1494. On June 12, 2019, Christie’s put up one copy for auction. (The starting price was one million USD; it eventually sold for 1.2 million USD.) Experts estimate 120 copies of this book still exist. An image of a typical page, reproduced here, shows its type font is somewhat less readable than the modern accounting textbook. Summa de Arithmetica was widely read and used at the time. It contains real-life examples, […]
Winds of Change
“Will the greater intensity of climate change expected in Canada produce a greater impact on Canadian financial institutions, and firms that hold a greater proportion of exposure to Canada in its portfolio?” This was the question posed by Robert Thomas, risk consultant to the non-profit organization Ontario Conservation Now as part of a round table held at the Toronto Public Library on April 18, 2019. A report[1] tabled earlier this month by Environment Canada says that climate change will have a greater effect on Canada than on most countries. The report, Canada’s Changing Climate Report 2019 (CCCR2019), looked at observed […]
The Big Question
“Look around your office. Turn on the TV. Incompetent leadership is everywhere, and there’s no denying that most of these leaders are men,” reads the provocative blurb on a new book about leadership. Released this month in hardcover by Harvard Business Review Press, the book Why Do So Many Incompetent Men Become Leaders?: (And How to Fix It), Tomas Chamorro-Premuzic asks two powerful questions: Why is it so easy for incompetent men to become leaders? And why is it so hard for competent people–especially competent women–to advance? Marshaling decades of rigorous research, Chamorro-Premuzic points out that although men make up a […]
Missing the Mark
“In the spring a young man’s fancy lightly turns to thoughts of buying a house,” Morty said, as he put the latest issue of the Financial Analysts Journal on my desk. We don’t often paraphrase Tennyson in the office, so this caught my attention. “You’re not thinking of moving again, are you?” I said. “No, but I always keep my eye on the market,” he said. “You should check out what these economists are saying.” So I did. First I read the FHFA working paper, by the team of Alexander Bogin, William Doerner, and William Larson. “Missing the Mark: Mortgage […]
Barcodes of Finance 4
7. Will blockchain technology affect the drive toward barcodes? It most definitely should—and in a positive way. The maintenance of a distributed database of identifiers, both for participants and products traded throughout the global financial supply chain is the easiest global blockchain infrastructure application to be developed. A global database of all the world’s participant and product identifiers, maybe a half billion records, is limited in scale, both as to data recorded in its distributed ledger and in its limits of processing speed—seconds required, at the most. Both parameters of speed and scale are well within the boundaries of current […]
Barcodes of Finance 3
5. Great, the G20 set up the Financial Stability Board to set things straight. So, what’s the problem? It was thought by all that “regulatory compulsion” at such a global level, overseen by the world’s most prominent collection of leaders of the largest economies, would finally solve the collective action problem that stymied the industry from doing this on their own. Industry members could not justify stepping aside from each firm’s own self-interest in maintaining the status quo. It would be costly to re-engineer legacy systems built in convoluted increments over the previous six decades. Everyone without exception wanted to […]
Barcodes of Finance 2
3. What allowed non-standard transaction date to persist and what was your response? I had spent my whole career in various sectors of finance and as an advisor to many financial institutions as a consulting Partner with PwC, responsible for the Financial Services sector. I saw the same sets of transaction data described differently in each firm, even though they would need to match perfectly between firms in order to confirm the transaction with the counterparty and either receive payment or pay for it. This disorder was managed by delaying the payment until all the details were reconciled, first by […]
Barcodes of Finance 1
After the holidays, Morty was bragging he’d been out to a new, very swanky seafood restaurant. “The maître d’ said they’re planning to bring in seafood barcodes.” I immediately pictured a slab of fish on Styrofoam with the price barcode sticker on it—straight from my local supermarket. “And this is at a high-end place?” I said skeptically. “Yeah, but it’s an identifier code, not a price sticker. It’s so the customer can verify they’re getting what they’re paying for,” he said. “Apparently there’s a big push to identify species, and make the information available.” Talking about fish barcodes reminded me […]