HOW TO CONTROL FINANCIAL GIANTS

When the music stops playing, things get complicated. But while it’s still playing we have to stand up and dance. We are still dancing. No future history book about the latest financial crisis probably will leave out a statement made by Citigroup head Chuck Price in June 2007. He said it at a time when the financiers were awakening from a period of golden profits into the risk of global collapse. The music was playing more and more off-key. What before seemed to be a symphonic orchestra, was transforming into an obscure disco group, until the dance almost stopped in 2008. Since then, politicians and economists have been wondering how to change an awkward rhythm back into an elegant waltz. Something is wrong when managers don’t understand the impact of the risks being accepted by their institutions. Barack Obama said that we failed to supervise so that instead of manipulation, productivity and healthy business were rewarded. He said this less than a month ago, in his speech in which he promised to change the regulations in the financial world. After rescuing a collapsing system there was a discussion on what the financiers of the future should be like. Global leaders are doing their best to make it clear that it’s time to adjust the rules. The principles at the G20 meeting came to an agreement regarding an international cross checking of the most important banks and insurance companies. The European Commission is considering the creation of a European board for systems risks, which would mean strengthening the competencies of the European Central Bank in the sphere of control at the expense of nonmember countries. Obama promised extensive supervision, mandatory higher capital suitability of banks and communication between supervisory offices. Supervisory agencies should have an opportunity to choose whom to regulate.