Brett King

Posts Tagged ‘reform’

Forget greater regulation, social media will force transparency (HuffPost)

In Retail Banking, Social Networking, Strategy on May 10, 2010 at 09:53

See the original post on Huffington here

As President Obama was gearing up last month to push further reforms for the finance sector through congress, the sector lobbyists were also gearing up for a battle of PR wits to try to prevent changes that threaten the status quo.  Senior industry players like Jamie Dimon were extremely vocal in challenging the president’s push for greater regulation.

The mantra of “too big to fail” was the protection the big banks were all hoping to fall back on, and this call was certainly an underlying foundation of the bailout and TARP initiative in the US. The fear that if the biggest banks fail, the economic repercussions would be so serious that it is less costly and more economically prudent to bailout big banks so the economy didn’t get hurt further. Such sector lobbying and grandstanding is a fairly standard reaction to such government intervention, as we’ve seen time and time again.

But there is something more powerful than regulation or reform which looks like it will be a much more powerful force for creating change that even politicians will learn to fear – social media. In the recent UK elections, voter turnout was at the highest level in 13 years, largely due to the influence of social media in creating interest and driving participation in the election.

We’ve seen social media act as a force for small business and consumers in breaking the back of long held bank policies that have been unyielding even in the most regulated markets, with active ombudsmen or watchdogs. In February of this year Citibank was forced to very publicly back down from a policy-based decision on blocking the business account of a web start-up called Fabulis. In September of 2009 Ann Minch, a long and faithful BofA customer, posted a YouTube video documenting the interest rate increase on her BofA credit card from 12 to 30%. In the video Minch comments that she “could get a better rate from a loan shark”. Bank of America was unmoved by her social media efforts, at least initially. But after more than half a million views in just a few weeks, BofA was forced to reverse their interest rate increase and in doing so set a very public precedent for other customers.

Corporations are under the watchful eye of social media

This is a trend more and more questions by customers, more reversals in policy decisions that were once held as sacred and unmovable by the biggest corporations globally – basically they were too big to be challenged.

The largest corporate bankruptcies in history (see great infographic) largely occurred due to either lack of adherence to existing regulations (Lehman Bros), unbridled greed (Enron), lack of innovative thinking (GM) or just poor management. Even though Enron and Worldcom’s collapse resulted in the creation of the Sarbanes-Oxley act, it is generally believed that it is not lack of regulation that resulted in what were the biggest bankruptcies in US history at the time, but the intent of the management to circumvent existing regulations to create ‘arbitrage’ opportunities.

Great infographic on largest corporate bankruptcies (Source:www.good.is)

Goldman Sachs is being targeted for similar practices, this time around CDOs and the sub-prime crisis. Calls for Lloyd Blankfein’s resignation are sounding around Wall Street as Goldman’s shares have plummeted 19% since April 15, knocking $15 billion from Goldman’s market cap. The issue at hand is Goldman’s active strategy to make money from the collapsing sub-prime market, such as the so-called “Big Short”.

We saw the same shenanigans during the Enron debacle with empowered traders coming up with trading strategies they gave nicknames such as “Get Shorty”, “Fat Boy”, “Death Star”. This represents an institutional, wall street embraced, increased appetite for driving speculative bubbles or exploiting regulatory weaknesses to make extraordinary profits. Traders argue that arbitrage is just an ability to read risk and hedge appropriately, but when the traders have enough clout to create the bubble that generates the arbitrage opportunity, it takes on a different life – and creates lots of ethical questions.

We are coming to a point in time where such speculative, hedging and arbitrage strategies, or even outright fraud, are going to be a lot more difficult to execute because of the force of public opinion powered by social media.

We have come to an age where those organizations who are transparent, open and engaging with their customers will be rewarded. Those who don’t understand social media, refuse to participate in the conversation, and who don’t easily integrate customer needs, opinions and issues into their organization, will be punished – publicly and without mercy.

We often talk about the privacy implications of social media, but when it comes to large corporations – you most private, sacred issues will be played out on the public stage unless you are on top of social media and it’s impact on the voice of your customer.

Get ready for open, transparent customer engagement, 2.0 style!

The Asian Banker Summit: Tackling Reform and Innovation (FinExtra)

In Retail Banking, Social Networking, Strategy, Technology Innovation on April 23, 2010 at 03:32

The original post appears here…

The Asian Banker Summit for 2010 was held over the 19-20th of April in Singapore with record attendance, in what was the 11th annual occurance of the event. With more than 600 bankers in attendance, the conference was not only the largest Summit on record, but ranks as one of the largest banking events in the world now.

The summit had the support of some impressive names. Amongst the speakers on the opening session was Neel Kashkari, former Assistant Secretary of the Treasury for Financial Stability under Hank Paulson, Heng Swee Keat, managing director of the Monetary Authority of Singapore, and Wee Ee Cheong, CEO of UOB and chairman of the Association of Banks of Singapore on key challenges to the financial services industry, and David Eldon, previous Chairman of HSBC Banking Group, and now Chairman of Dubai International Finance Centre.

Amongst the hot topics were proprietary trading for banks, regulatory reform, globalization and harmonization of regulatory frameworks, innovation, social media and reducing risk and uncertainity in financial markets.

The event was the first event with comprehensive Twitter participation throughout the conference, and some of the tweets highlight key thoughts that emerged. I thought the best way to focus on the key outcomes was to cover off some of those tweets.

  • Keynote panel at #TABS Opening Session: Hang Swee Keat (MAS), Wee Ee Cheong (UOB), David Eldon (DIFC), Neel Kashkari (TARP), Emmanuel Daniel
  • We must regain the trust of our customers…” – Emmanuel Daniel, Asian Banker

On David Eldon’s opening keynote…

  • 3 big hazards for banking sector (David Eldon) – Regulation, Political Landscape & Uncertainty, “Premature Economic Jubilation”
  • David Eldon says “Bank Tax” in the UK is likely to push many UK FIs to places like Switzerlan
  • The impact of social media is a key concern for retail banks in driving innovation – David Eldon
  • @wsquare – David e. says regulations top his list which keep him awake@night! http://tweetphoto.com/19035302

From Wee Ee Cheon, Chairman of the Singapore Association of Banks

  • Wee Ee Cheong says “The pace of change in Banking is accelerating due to innovation, beyond the control of banks…
  • Wee Ee Cheong (Singapore Assoc of Banks) says as economic rebound occurs, new players emerging & ongoing volatility
  • Wee Ee Cheong (Chair, Assoc of Banks Singapore) says Economic Crisis has taught banks “how to survive”
  • The importance of “Trust” and “Confidence” with customers should remain as the cornerstone of banking – Wee Ee Cheong
  • Emmanuel Daniel (TAB) says bank regulators need to have trading experience & collaborate, not just economics and/or banking experience

From Heng Swee Keat – Head of the Monetary Authority of Singapore

  • Heng Swee Keat (MAS) says that stealing competitors staff is a poor short-term strategy for growth, better is training/developmen
  • MAS considering introducing mandatory training program for Bank Directors to improve corporate governance – Heng Swee Keat (MAS)
  • Regulators need to be ‘outcome focused’ not just ‘rule focused’ creating more disruption in recovering economy – Heng Swee Keat (MAS)
  • New players in technology and innovation are not receiving enough support from finance sector to assist growth – Heng Swee Keat (MAS)
  • MD of Monetary Authority of Singapore, Heng Swee Keat says important that global banking regulatory reforms do not become politicized
  • MAS considering mandatory training for board of directors and even national exam for FI staffs eg for relationship managers!

And from Neel Kashkari, the Interim Assistant Secretary of the Treasury for Financial Stability, and where he led the Office of Financial Stability which oversaw the TARP initiative in the US.

  • Most banks got into trouble in the recent crisis by just being bad banks…” Neel Kashkari (TARP, US Treas)
  • “Contingent Equity” might be a solution for liquidity problems for banks in trouble in the future – Neel Kashkari (TARP)
  • “Too big to fail” – can’t break up largest banks because would have to break them into too many pieces to be practical – Neel Kashkari
  • Failure of GM, Banks would have put the ‘system’ at risk – if not US govt may have allowed failure – Neel Kashkari (TARP, US Treas)
  • The only way to absolutely prevent future financial crises is to stop innovation – not viable, Neel Kashkari (TARP, US Treas)
  • Neel Kashkari (TARP, US Treasury) says regulatory policy/reform is a battle between Economics, Legal, Politics – unpredictable

The twitter coverage of the event bought some very interesting facts out that might otherwise have been lost in the overwhelming discussions on regulatory reform, harmonization and who was responsible for the Global Financial Crisis.

Such a Twitter strategy has been commonplace for events like SXSW, the recent F8 and other such tech heavy conferences, but bankers are not know for their adoption of social media and their strategy for sharing internal insights such as were gleaned at the summit. Perhaps this marks a new awarness of market and customer needs to be more connected with what is happening at the regulatory and policy end of the spectrum. Then again, most of the tweets came from the attendees participating in the technology innovation stream of the event – so maybe it’s still about the geek factor for banking for now.

In any case, a positive trend. Such transparency helps us as broader participants in the financial services sector to feel like we are part of the discussion.

Brett King is author of BANK 2.0 and runs the Banking4Tomorrow advisory

What DAVOS needs to do, but won’t

In Groundswell, Media, Retail Banking, Social Networking, Strategy on January 26, 2010 at 23:14

We’ve all read a great deal about DAVOS World Economic Forum (WEF) over the last few days discussing what the leaders of the planet will need to achieve. While the environment, and responses to crisis like Haiti will be sure to be a feature, the world in general will be looking for Davos to achieve is some progress on reforming the global financial system.

Considering the G20 and G7 and others have had a shot at this there is some indication that at DAVOS this year reform of the global financial system will continue to be the hot topic. The focus will likely be on the role of regulators, the flow of capital, interconnectedness of global capital markets and trade, and the way banks should work responsibly to free up capital and encourage liquidity. The forum is unlikely to get into specific discussions on the creation or structuring of financial instruments or speculative trading practices, rather sticking to the core principles of how the financial system can be better managed to prevent future problems.

The World Economic Forum is by invitation only and those that are invited are the undisputed world leaders in their fields. Typical participants include government representatives of the world’s top economies and fastest-growing small countries, heads of state like Vladimir Putin and Wen Jia Bao, government ministers for finance/economics, leaders from international NGOs, cultural and sports leaders such as U2’s Bono, and thought leaders like Bill Gates and Al Gore. The most influential voices and minds in the world today.

Wen Jiabao, Klaus Schwab - World Economic Forum Annual Meeting Davos 2009
DAVOS-KLOSTERS/SWITZERLAND, 28JAN09 – Wen Jiabao (L) , Premier of the People’s Republic of China and Klaus Schwab, Founder and Executive Chairman, World Economic Forum, captured during the session ‘Special Session with Wen Jiabao, Premier of the People’s Republic of China’ at the Annual Meeting 2009 of the World Economic Forum in Davos, Switzerland, January 28, 2009. Copyright by World Economic Forum swiss-image.ch/Photo by Monika Flueckiger

Looking through the World Economic Forum Programme for this coming weekend there are some incredible speakers and topics. James Cameron will be there to talk about directing Avatar. Reid Hoffman (Linkedin), Evan Williams (Twitter) and Owen Van Natta (MySpace) will be there to discuss the growing influence of social networks. Tim Brown (IDEO) and Gary Hamel (Author, MLab) will be there to discuss management innovation. Brian Moynihan, CEO of Bank of America, and others will be there to discuss redesigning capital markets. Bill and Melinda Gates will be there to discuss their foundation, and Melinda Gates will be discussing education for girls and how it effects economics in the developing world. This is just a small snapshot of the amazing depth to the forum, but something is missing.

The issue of customer advocacy and how input from customers is integrated into the strategy of an organization is completely absent from the forum. While management innovation, risk mitigation and big picture regulation and reform are being discussed, the voice of the customer is likely not to be heard this year at Davos. Why is that significant? When it comes to the financial crisis perhaps the most significant voices namely, the consumers who have been affected by the global financial crisis with job losses, foreclosures or mortgage repossessions and general economic challenges, are silent due to their absence. Interestingly while seeking to ‘fix the system’ the forum doesn’t actually appear to have any mechanism or sessions dedicated to these issues which are the primary outcome of the financial crisis.

While I agree that the system is broken, new thinking is required on how to ensure that the changes protect customers and not just reduce institutional risk and government exposure. There is no apparent discussion on innovation and compensation for financial institutions so that the massive profits that have been yielded, despite the financial crisis, can be injected back into the system in a more constructive way than through the bonus checks of bank senior executives. We should be seeing sessions that tie the financial system to economic improvement through corporate social responsibility and better initiatives for the disadvantaged, and sessions that motivate global financial brands to do more to support microfinance and give the unbanked more accessibility to finance in the developing world. These are all problems of which there are reasonably simple solutions if there is the will.