Category: Banking Crisis

Explaining Banking to Bank Directors

The Federal Reserve has announced a new initiative: A website to explain banking to new bank directors. No, really, they have. From the press release:

“Many people who are asked to serve on bank boards have little training or experience to prepare them for their new roles,” said Patrick M. Parkinson, director of the Federal Reserve Board’s Division of Banking Supervision and Regulation. “This website has been developed with new directors in mind, but there is plenty of useful information for those who have already spent time on bank boards.”

In relation to the Irish banks, one can certainly argue that bank directors with little experience of banking, finance or economics played a role in their downfall. It will be interesting to see if this is an issue touched upon by Mr. Regling in his report to the banking enquiry.

This raises a more general question: Why are bank boards so commonly made up of people with little relevant experience? Is this an issue that needs to be addressed by regulators in the future? Or is it too much to expect bank directors to have technical expertise and these issues are best left to management, with boards simply overseeing corporate governance issues?

Whoops

Novelist John Lanchester is giving a public lecture at the London School of Economics this coming Thursday linked to the launch of his new book, Whoops  – an anlysis of the financial crisis. The FT and the Sunday Times both carried extracts over the weekend. I was particularly struck by his comments on behavioural economics:

I have a confession to make about Kahneman and Tversky. I’d never heard of them until Kahneman won the Nobel, and when I first read about their work it seemed to me to consist of things that were surprising only to economists.

You can read the full extract here.

Further Delays on NAMA

When the NAMA bill was being debated in the Dail last Autumn, the public was regularly told that the plan was to have the first tranche of loans transferred by the end of last year. Today’s Sunday Business Post reports that further delays are now expected due to delays in preparations at the banks and due to the absence of clearance from the European Commission. The story reports that a verdict from the Commission may not come until the end of February at the earliest.

Stories such as this and this from the today’s Sunday Tribune also make it clear that it is going to be very difficult to attract private funds to the banks. At this point, it is perhaps a legitimate question to ask whether events have not overtaken the whole NAMA-Long-Term-Economic-Value strategy to keep the banks out of some form of temporary nationalisation.

Reinhart and Rogoff on Debt and Growth

Carmen Reinhart and Ken Rogoff have an interesting op-ed in today’s FT: you can read it here.

Standard and Poor’s on Anglo

My earlier post on Standard and Poor’s neglected to mention their comments on Anglo Irish Bank. The key passage is as follows:

Anglo has submitted a restructuring plan to the EC as a consequence of the state aid it has received from the Irish government. It has been reported that the management is proposing that Anglo is split up into a good bank and a bad bank. We anticipate that, if such a plan is approved by the EC, capital instruments such as lower Tier 2 may be left in the bad bank. Other options reportedly considered in the plan are liquidation and an orderly wind-down. Anglo’s plan is yet to be approved by the EC; we understand approval may occur in the first half of 2010.

I’d guess that these lower Tier 2 instruments (i.e. subordinated bonds) left in the Anglo “bad bank” (not to be confused with NAMA …) would end up being pretty worthless.