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The Limits of Control: Rethinking Financial Responsibility and System Reform

This examination delves into the weaknesses of our financial systems and the illusion of control that comes with scaling regulations and penalties. It underscores the importance of separating commercial from investment banking, enhancing European supervision, and restructuring incentives, while also challenging individuals and institutions to take greater responsibility. It emphasizes that true human motivation and ethical behavior are essential, reflecting on how over-regulation may undermine moral judgment. Through a shared language of integrity and practical wisdom, we can foster a more responsible and responsive economic landscape.

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The Limits of Control: Rethinking Financial Responsibility and System Reform

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  1. Jaap Winter The Limits of Control

  2. A gentlebreeze 2

  3. Grewinto a perfect storm 3

  4. Disasteravertedbymassive state aid 4

  5. But all was fine forsome 5

  6. On to the next crisis 6

  7. Whocan we blame? BankersNon-ExecutivesRegulators Credit rating agenciesRemuneration Consultants ShareholdersConsumersAdvisersAcademics The Market The Government 7

  8. Shaggy defence 8

  9. Let’sfix the system • Separate commercial from investment banking (ring-fencing) • European supervision on banks • European Systemic Risk Board • Restrict and restructure remuneration • Expertise requirement non-executives • New risk management • More transparancy • Prohibit naked short selling • Pension system review • Product approval 9

  10. System building andchanginggivesanessential but false sense of control 10

  11. Blamingothersand the system avoidslooking at ourselves 11

  12. Keysystemic building blocks (institutions): rulesand incentives 12

  13. The Paradox of Rules: more rules (incl procedures, policies, control mechanisms, enforcement, punishment) reduceourresponsibilityto compliance responsibility • Barry Schwartz (ted.com): • more and more rules chip awayourmoralskills • Impairourjudgement 13

  14. Anotherproblemwithrules • Illusion of implasticity of ourbehaviour • 90% of innovation in financial industry is ‘regulatoryinnovation’ 14

  15. Rules are scaffoldingthatallowsustobuild 15

  16. Andscaffoldingcanbeweak 16

  17. Incentives corrupt Perverse Crowd out motivation Cheat andlie Schwartz: more and more incentives destroyourmoralwill 17

  18. Anddon’twork the way we think • Constrictourcognitive skills, justwhen we needthem Pink: Drive, the suprisingtruthDan Ariely aboutwhatmotivatesus 18

  19. A reminder: the law of diminishingmarginalutilityappliestoinstitutions as well First law of Gossen Goodsandinstitutions Organisationsand Society at large 19

  20. Organisationis often more like a sailboat 20

  21. Thanlike a speedboat 21

  22. We needtoresist the standard leadership reflex “We willensurethatthiswillnot happen again” 22

  23. Andoururgeto control 23

  24. Control Department Risk • Outsourcing risk: diminishesownresponsibility • Over-control: dissatisfactionand end of enterpreneurship • Behaviourtranslated in technical procedures, language, policies: remotenessdiminishesresponsibility 24

  25. Needto get (back) to the heart of the matter: whatit means tobe human 25

  26. Whatmotivatesus 26

  27. Whatmakesusresponsible: abletorespond Francis Bradley (1876) My station anditsduties 27

  28. Shared languageof Integrity • Michael Jensen, Steve Zaffron • HonouryourWord • keep your word, or • say youwillnot as soon as youknowandsolveresultingproblems of others • Effectiveness • Habitus • Common language • call to account • Response-ability • Serenity 28

  29. CanControl handle soft controls? 29

  30. BeingHuman is practicing • Aristotel • Virtueethics, practical wisdom • Thomas Acquinas • Habitus • Benjamin Franklin • Daily practice • Peter Sloterdijk • Denn da istkeine Stelle, die dich nicht • sieht. Du musst dein LebenÄndern(Rilke) 30

  31. How can Control contributetoConversation, Language (Integrity) andPractice? 31

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