The Smartest Guys in the Room
My visit to yet another smart-guy gathering at EUROFI 2013
For keeping my foot in the doorway of big-shot international financial markets regulation game I once in awhile (usually every 4 month) try to visit a high-level international conference or meeting where all the big names in academia, regulation and supervision, central banking, development banking, international organisation world meet their practitioner counterparts — the bankers/asset managers/institutional investors. Usually an important politician — like EC commissar, MEP, MP, minister of finance also pops in for a quick and passionate speech about supporting the markets and pushing for a real change (at last!!!), while yet supporting the industry (this is usually crucial as the industry is paying for the coffee and snacks).
I’ve been to IMF’s get together to praise and shame countries and markets, SUERF’s academic discussions, ICFR’s regulatory summits where bankers (even when present in the room) get an evil eye from regulators, IIF’s american style market get together in usually a posh city for spouses to enjoy where bankers and other financial institutions pay for the music and control the word (usually discussion resorting to deep macroeconomic analysis not to step into member’s dis-comfort zone) and where regulators are only present for inspiring discussions. Don’t get me wrong they are all extremely valuable and push for a change of thought, serve as venues for pitching game-changing ideas and let everyone get out of his office, share how he sees the world and get bunch of counterarguments which help him think further and better What I really love about all these gatherings is that every 4 month the agenda is still the same — CRISIS! CRISIS! CRISIS! Loads of bad things to say — plentiful of applaudable developments to share. Pitching ideas on building better future not like before 2007 and this time for REAL! However, the particular items which get comfortably into such underlying agenda are always COMPLETELY DIFFERENT. Have never heard even a single panel to discuss the same topic as 4 month ago. I mean not at least the name of the topic is different and the initial points for discussion are different (though most passionate panelists tend to get back to the roots and use the same old ghosts to prove their point). Having realized the latter, after attending couple of such events I started using them as my foot into a doorstep of the world of international finances. Keeping my grip on the change as its seen and is being pushed by the big boys in London, New York, Paris, Hong Kong, Singapore, Brussels, Washington.
Living and practicing in an “insignificant jurisdiction” this is the only way to keep in touch with the international world of finance and not to forget that the world is large, swiftly moving and developing. Not to forget that despite ego-centrism enshrined into country’s stance and stance (and stance of its local “big-shot financial world reps”) we are not creating anything new in here and every single problem we come across may be traced back to a problem in developed financial markets. To a similar problem and its consequences and means to resolve it. And setting aside the fact how I am always struct by shortsightedness and refusal to acknowledge that “I am not that significant” as policy is made, decisions taken, tools created, problems born and solved outside my country and outside my field of expertise — my quote “insignificant jurisdiction” has nothing to do with me not being in deep love with my country and its professionals, and its experts, and its creators, and its artists, and its thought provoker, and its entrepreneurs, and its genuine leaders. This is just an objective admission with no hard feelings. Having had an opportunity to study in and see it from inside the world’s financial center I am able (despite my natural human ambition to consider myself to be the best) and not afraid to call it as it is — “insignificant”. In one of the events I actually met a guy from a central bank who once ask where was he from replied — “oh, very insignificant jurisdiction”. And that guy was from a Bank of Canada. Yes Canada. The one who gave the world Mike Carney now serving as the governor of the Bank of England and chairman of the Financial Stability Board set under auspices of G20 meeting and its goals set in Pittsburgh and the one who is praised around the world for having built robust financial system, which managed to withstand large shocks and protect the economy.
As always, you just witnessed huge inconsistency in my thoughts :) but I found this to be a perfect place to say something I wanted to line down on a piece a paper for awhile :) And it’s gone.
So yes for fulfilling my routine knowledge refreshment last week I went to the Eurofi 2013 meeting. Very conveniently it took place in Vilnius. Eurofi — a think-tank devoted to financial stability and regulation set up under the efforts of Mr. Jacque De Laroiser. The man responsible for creating EU system of financial regulation (EBA, ESMA, EIOPA). Aura of his name and the fact that ECOFIN was taking place in Vilnius at the same time attracted some of the best known names in the world of international finances. Lots of people I have met before, this time were in the same room: Mr. J Assmusen, Mr. Praet, Mr. D. Wright, Mr. P. Moscovici, Mr. Barnier, Mr. O. Rehn. Though surprisingly no academics this time.
So in short the big topics this time were: risks created by moving OTC onto the Central Counterparts and resolution arrangements available; Complacency in the markets and government behavior caused by improving economic data; Single Resolution Mechanism and its role in completing Banking Union (it was one day after EU Parliament voted for creation of EU wide SRM); EU wide deposit insurance mechanism and its importance. These were usual suspects but besides them panelists focused on how to kick-start infrastructure financing and mid-cap financing (which compiles my two biggest passions — international finances and venture capital :)).
Discussions this time seemed to only scratch the surface of every problem without pitching something new and very unexpected. Agreement between the public and private sector could be observed on most of the issues. With the exception of probably Banking Resolution where public sector tended to promote flexibility for national regulators due to idiosyncratic nature of the local markets and bankers fearing fragmentation in regulation and therefore 28-fold compliance costs addressing each regulators take, were strongly pushing for full integration.
However, regulators and bankers’ agreement on most of the issues was there. Even on issues which you would not expect — like capital levels, lowering leverage in the system, pushing trades onto CCs, installing single supervision and resolution toolkit. I felt this pattern emerging from my previous visits to the forum of international finances. And actually should say it is not that surprising. A fifth Lehman Brothers collapse anniversary is a reminder how things can sometimes go south for the entire market, entire industry. It rocked the businesses and lives so hard that even a short-sighted and hard-ass investment banker would not want to see and experience this again. Drop in competitiveness, de-integration of financial markets, lost revenues, drop in returns, blame from society and governments, stress of not knowing what is happening and how deep in mess is your institution (Lehman case again), widespread prosecution (though not for Lehman :)), revenge in mandatory pay cuts, persistent global economic downturn and its affect on business, cloudy prospects of the future, streets full of angry unemployed youngsters and economists’ observations about bankers stealing the wealth from their children and grandchildren — this makes you soften your position when its comes to measures for cleaning up the mess made while the music was playing and everyone was dancing. Until the memories are not wiped out by prospects of getting filthy rich and shame is still here, regulators and bankers need to talk a lot and act quickly to get it right and make international finances less prone to extreme volatility and build-up of instability.
Good ideas were pitched and precious time was wasted on praising European Commission, MEPs — who actually are the biggest unnecessary political obstacle for necessary reforms, unnecessary and hypocritical clapping for political populism was awarded. However, some rough diamonds, which made it a successful event, emerged.
First of all Mr. David Wright’s (IOSCO chairman) uncompromising criticism to lack of international cooperation and enforcement, inefficiencies of international setting of regulatory institutions and lack of real progress towards sorting out Too-Big-To-Fail problem on international level, lack of constructive approach towards risk weighting system, admittance that no one really knows what is this shadow-banking (since the name suggests — its impossible to see it as it is in the shadow). All this criticism made the audience clap with this awkward start of couple of claps while everyone else is getting his jaws together after hearing something so pure he did not expect to hear in this environment of fake smiles and occasional “salesman” who has no idea whatsoever what is he doing here as he can’t really understand a word in panels’ discussions. A further blow by spotting persistent unethical behavior in the market and lack of real sanctions and general development in the field to root it out was just too much. No surprise chairman of the panel left this speech to the very end not allowing any reaction of Q&A time.
And then Mr. Anders Borg’s (minister of finance of Sweden) yet another straightforward message to the markets, MSs and EU apparatus. He pleaded for the governments to get rid of vested interests and pre-election dancing around, not to get lost in complacency and strongly opt for crucial structural reforms, substantial reduction in public debt and getting rid of ill-performing welfare states. What Mr. Borg was pleading for really is for creation of long-term memory, ability to look back and learn from mistakes. For creation and following of long-term plan instead of looking for quick fame. I am sure he was barking at the wrong gate :) and was asking for way too much. Why? Because MYOPIA is something so enshrined into human nature, patterns of social behavior and human neurological capabilities that words (even presented in a clear and straightforward way) may do nothing to achiev something Mr. Borg was asking for.
For a further analysis and showcase of how myopia and shortsightedness is influencing reshape of financial market regulation and what long term implications it is bringing — see my piece Loosing the Wood for the Trees
