Simple and Robust

Last week, the Governor of the Bank of England, Mr. Mervyn King, delivered a speech to a group of international bankers about how we can emerge from the current economic crisis successfully.  In his view, regulatory reform should be both "simple and robust" to be effective.  Here's a brief excerpt from his speech.

A lesson of history is that few generations have been able to avoid a repetition of earlier banking crises. The essential problem is that we can no more bind our successors than our predecessors were able to bind us. Rare events, even when dramatic at the time, lose their power to shape policy as memory recedes. The role of institutions is to retain a collective memory and to resist the temptations of the present. That is one of the most important roles of a central bank. It is accepted as such in the domain of monetary policy. And there is an equivalent role in financial stability.

The introduction of simple and robust policy tools into a regulatory regime based on the exercise of constrained discretion would make it easier to resist overly rapid expansion of financial institutions. In particular, the authorities should maintain a clear focus on the issues that matter when the worst occurs – liquidity and leverage. It should be intrusive, in the sense of knowing what is going on, but not bureaucratic. A system in which it is easier for a large bank to expand and then destroy its balance sheet than for an individual to open a bank account has lost focus. That is not the fault of regulators, but a reflection of the pressures and incentives they have faced – from all of us.

The same can be said for a company's enterprise risk management program - a simple, yet robust approach is required to be both successful and sustainable.  Wheelhouse Advisors can help you build an effective ERM program to meet these objectives.  Visit www.WheelhouseAdvisors.com to learn more.