Please, do not dig us deeper into the sophistications of risk management!
Sir Michel Schrage in “How to sharpen banks´ corporate governance” November 18, tells us “that the most important governance reform in financial services would make risk management the explicit duty of the board.” “insisting that directors be more conversant in and accountable for risk.”
As someone who knows quite a bit about risk management and that also, while an Executive Director served on the audit committee of the World Bank, drowning in Sarbanes Oxley procedures, I feel this is a very dangerous approach that could lead to an over-specialization of the boards which would, sooner or later, end up with some extremely sophisticated blinds leading some quite expert blinds.
No, what we need is a much diversified board of directors, where before any approval all directors have to certify, in writing, that they fully understand what they approve. What cannot fully be understood, by reasonably intelligent Directors, without a PhD in financial risk management, has absolutely no place in any financial institution that has the benefit of a public lender of last resort.
This is especially so because financial studies of financial risk management does not guarantee knowing about all the risks of life in general, such as the possibility of credit rating agencies suddenly not knowing what they are up to and sending us, the herd, away into crazy directions.
And with respect to the “too big to fail” the solution is simple. A tax on size, because the bigger they are the more it will hurt when they fall on us, as they will, sooner or later.
As someone who knows quite a bit about risk management and that also, while an Executive Director served on the audit committee of the World Bank, drowning in Sarbanes Oxley procedures, I feel this is a very dangerous approach that could lead to an over-specialization of the boards which would, sooner or later, end up with some extremely sophisticated blinds leading some quite expert blinds.
No, what we need is a much diversified board of directors, where before any approval all directors have to certify, in writing, that they fully understand what they approve. What cannot fully be understood, by reasonably intelligent Directors, without a PhD in financial risk management, has absolutely no place in any financial institution that has the benefit of a public lender of last resort.
This is especially so because financial studies of financial risk management does not guarantee knowing about all the risks of life in general, such as the possibility of credit rating agencies suddenly not knowing what they are up to and sending us, the herd, away into crazy directions.
And with respect to the “too big to fail” the solution is simple. A tax on size, because the bigger they are the more it will hurt when they fall on us, as they will, sooner or later.
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