ARTICLE OF THE SERVICE OF SIGNATURES OF THE AGENCY EFE
Antonio Moreno, professor of Economics and Finance at the University of Navarra and Doctor from Columbia University
The financial meltdown of the global recession of 2008 gave way to 10 intense years of banking regulation and supervision. After this enormous effort on the part of regulatory authorities, supervisors and, above all, financial institutions, we can ask ourselves if our financial system is more resistant to future economic and financial shocks.
Undoubtedly, financial institutions are now more capitalized and have more liquidity than before 2008, which makes them less vulnerable to shocks similar to the one that occurred in September 2008 with the bankruptcy of Lehman Brothers.
Therefore, it can be said that the financial system is currently better able to better serve society as a whole, performing its basic functions (deposits, loans via green touch merchant cash advance- a cool site !!, and other financial services) in a more sustainable manner.
However, it is also necessary to ask whether our financial system will be equally resilient in the face of future adverse contingencies of a different nature from those of the last crisis. Because financial crises are not usually all the same, although they may have some common features, such as credit excesses or global financial imbalances.
They are inspired by past or recent problems
And this is where the answer to the initial question is not so clear, because future crises do not really know where they will come from. In fact, the limitations of financial regulation and supervision lie precisely in that
And it is natural that it is so because, on the one hand, it is after the crisis when the weaknesses of the financial system are truly known; and on the other, the development of potential future weaknesses is less known and therefore more difficult to regulate.
That said, the current supervision includes relevant preventive elements since it exposes the banks to stress tests – the famous stress tests – in scenarios of severe future recessions. It is, therefore, an advance, despite the limitations that are already perceived in these tests, which we hope will be more robust for the future.
In any case, as William Dudley (president of the New York Federal Reserve) recently mentioned, a third pillar is needed – beyond regulation and supervision – to face the future with more guarantees: a new banking culture that encourages good functioning of the organization, starting with integrity in individual behaviors.
Promoting integrity from the organization implies two elements. On the one hand, establish incentives that encourage an ethical breeding ground in organizations. In this sense, I would highlight not linking economic incentives to short-term results, ensuring the independence of rating agencies, or avoiding positions of excessive risk without coverage -as those maintained by loan insurers-.
The financial scandals have been happening; In recent years we have been aware of the manipulation of LIBOR or the false accounts of Wells Fargo. The latter has even emerged in a new scenario in which the banks already had a new regulatory clothing (this term coined by Anat Admati, Stanford professor).
In none of the cases were the correct internal incentives in the banks to avoid them, but – and this is the second key element in building a new banking culture – these financial shocks arose from unethical behavior, based on the search for personal and economic benefits. to the detriment of the common good. And it is not only clothing that matters, but what is inside.
The great advantage of creating a new banking culture is that instead of regulating based on past problems, future risks are reduced and negative shocks can be absorbed more efficiently: it is like having more capital, but a cultural capital.
In any case, the future presents many challenges and vulnerabilities on the horizon, I will point out two. On the one hand, as the International Monetary Fund has just emphasized, there is excessive leverage, both private and public at a global level. In Southern Europe, we know well how this element is capable of propagating financial crises and segmenting financial markets to the point of preventing access to them.
On the other hand
the unstoppable digitalization that seeks to place the client in a central place –
which is in itself something desirable- entails relevant dangers, such as cyber attacks.
Given these challenges, the new financial stability (2.0) will require efficient regulation and supervision, as well as actively promote a banking culture centered on service and not on short-term profits.
NOTE: This article is part of the signature service of the EFE Agency to which various personalities contribute, whose works reflect exclusively the opinions and points of view of their authors.