• Laura M. Cha • Suzanne Nora Johnson • Stephen G. Pagliuca • Lord Turner • Jacob Wallenberg • Zhu Min
Moderated by • Michael Useem
Wednesday 28 January
The current financial crisis has exposed a systemic failure of risk management and risk assessment, both in the private and public sectors. This exposure has raised questions about rating agencies, financial institutions, investor practices and the role of watchdog agencies. It has been a toxic mix. Financial governance is at the core of the current economic failure. How can governments, corporations and regulatory agencies rebuild public and political confidence in the financial system? What elements of today’s financial governance regime should be retained? What should be discarded and replaced? How can regulatory and monetary policies better control bank leverage, financial instruments and structured products? Panellists sought to answer these questions and to forge a blueprint for structuring financial governance in a post-crisis environment.
Conclusions
• Short selling creates a beneficial impact on individual equities, but in times of great market stress the practice increases systemic risk.
• Because the global regulatory framework has no treaty-based, global agency – no equivalent of a World Trade Organization, for example – regulators must seek out other ways to harmonize regulatory regimes within national governments and among nations. Nevertheless, there is a need for a set of global rules. There should be better coordination among regulatory agencies as well as a consolidation of regulatory responsibilities among governance authorities. In addition, the capacity and capabilities of regulatory authorities should be increased.
• Regulators cannot determine executive remuneration, but they should foster an environment that encourages compensation packages that reward long-term thinking.
• Non-executive directors must increase their savvy; these board officers should take more responsibility in probing corporate actions.
• Regulators should think in a more fundamental fashion about what went wrong and how the “boom and bust” business cycle has sharpened into a destructive economic force.
• Regulators must be vigilant in not exempting “shadow banks” and other unorthodox financial institutions from banking regulations.
• To quell public anger, regulators and the other financial governance actors must accept responsibility for the current economic problems and clearly articulate solutions. Politicians should take the lead in pushing consensus reforms, with the full panoply of other stakeholders informing and supporting these reforms.
• Financial governance requires a new mindset and a new paradigm of thinking. This is not a time for piecemeal reform, but for large-scale, big picture rethinking on how best to govern global capital and the world marketplace.