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London July 8 2009
Ladies and Gentlemen: I am delighted to receive this award.
Speaking of ‘lifetime achievements’: let me congratulate Euromoney on its 40th anniversary. In forty years, Euromoney has become one of the definitive sources of information, commentary and judgment on the financial industry. This is an achievement you should be very proud of.
I must say: the last couple of years have felt like a lifetime.
I never thought, in my 30-plus years in banking, that I would see such enormous changes as those that our industry has witnessed in the past 24 months. We’ve learned some tough lessons.
• The risks in the banking system were greater, and more complex, than anything we imagined. The last estimate of the IMF for losses in the banking industry as a result of the financial crisis was $4 trillion; • The banking system is more interconnected than we thought possible – in other words, systemic risk is much greater than we imagined; • We have seen government intervention in both banks and markets which is unprecedented at any time since the 1930s; and • The public’s trust in banking, and in bankers, has been profoundly shaken.
So: we are witnessing a paradigm change for our industry. Decisions taken over the next couple of years will influence banking for the next generation.
The question is: what form will the new paradigm take?
In my view, the lessons we have learned in the last 24 months point us to some likely features of the ‘new world order’:
• The regulatory and supervisory framework will be tighter; • It will be more co-ordinated and harmonised across different jurisdictions and regions; • It will have to take account not just of individual bank risk, but also of systemic risk; • It will also need to take account of risks not only in the banking system, but also in the so-called shadow banking system; • Government and public opinion will play a much greater role; • And, last but not least; accounting and reserving policies will be extremely important in guarding against pro-cyclicality
But let me also be clear: in a time of change, some fundamentals will remain. The capital markets will continue to serve a vitally important role in the world’s financial system:
• We cannot finance the world economy through a return to conventional balance sheet lending. In fact, as we focus on reducing leverage, capital market disintermediation becomes more important than ever as a source of funding for the global economy. • And on the demand side, the argument is equally compelling: wealth is still being created in emerging markets. More than ever, we need to provide for our retirement. Investors still want capital market products, despite the turbulence of the past two years. • In addition: there must be an exit route for governments. Governments and central banks around the world have made a massive contribution to stabilising the financial system. We are in their debt. But state intervention should be temporary, not permanent.
The key for the banking industry is: we must adapt to the lessons we have learned from this crisis, but also continue to deliver for the world economy. I believe there are some imperatives for the industry. Here are a few:
• First: we must stay engaged, intensely, in the dialogue with regulators, politicians and central banks as we define the new paradigm. That dialogue has never been as important as it is now. If we don’t engage, others will write the new rules for us. • Second: we must speak with a coherent, consistent voice, as we work with regulators, and governments, to shape lasting solutions to the problems thrown up by this crisis. • Third: let’s be honest about the mistakes we made, the lessons learned, and the remedies which are necessary. Let’s not shy away from making hard choices. In the past few weeks, financial markets have stabilised. Already, we’ve seen speculation that our industry will soon be back to ‘business as usual’. Let me say clearly; there are lessons from this crisis which we cannot afford to ignore. • And finally: we must win back public confidence and trust. The business decisions we make, the way we behave, and the way we reward ourselves, must be absolutely focused on creating long-term value for all our stakeholders, if we are to win back that trust.
And it’s hard to think of a time, in recent years, when the stakes have been as high as they are now.
Thank you for your attention, and for the honour of this award.
Euromoney Awards for Excellence 2009
Lifetime achievement award Middle East
Lifetime achievement award Asia