Claire Jones

Today the Bundesbank has leapt to the defence of the much-maligned male banker, saying that it was not them, but the women on lenders’ boards that encouraged risk taking.

This from the FT’s Frankfurt bureau chief Ralph Atkins:

Board changes at banks that result in a higher proportion of female executives “lead to a more risky conduct of business”, concluded the authors of an extensive study of German finance houses released by the country’s central bank…

…Explaining their controversial findings, based on an analysis of German bank executive teams from 1994 to 2010, the report’s authors suggest a main reason is that women executives tend to be “significantly less experienced” than male counterparts and that a lack of experience drives risk taking.

The argument that women fail to control risk because they lack experience is a bit circular surely.

But, regardless of what has happened at German lenders, a plethora of women in their upper ranks is not an excuse that central banks can rely on in explaining their policy failures. Read more

European economic policies will come under more scrutiny from this month when the European Central Bank takes the lead in a new financial police authority with whistle-blowing powers to prevent future crises.

The European systemic risk board (ESRB), chaired by Jean-Claude Trichet, ECB president, will have powers to issue warnings and recommendations when it sees threats to economies or financial systems. But it could have a tough time proving that such limited powers, wielded by European officials, can prevent financial market turmoil on the scale seen in the past three years. Read more

A small sigh of relief from London today. Bank of England governor Mervyn King is to be the vice-chair of the newly launched European Systemic Risk Board, established yesterday and whose inaugural meeting takes place January 20, 2011. Relief, because the appointment suggests eurozone concerns won’t dominate the Board, and that the UK’s banking-driven economy will be represented.

Relief, however, will be limited in some quarters. There is a relative lack of bankers and technical experts, who really understand the tricks of the banking trade. Even if there are ex-bankers among the various levels of hierachy and sub-committees, it is not the same as plugging the institution directly into the banking sector. This is not an oversight but part of the Act: “No member of the General Board (whether voting or on-voting) shall have a function in the financial industry.”

There are two Advisory Committees because “the composition of the ESRB will be very high level …[and] it can happen that the ESRB needs to draw on more specific competences than the ones usually available at the ECB.” The Technical committee comprises representatives nominated by central bankers and regulators – there will be about 60 of them. The Scientific committee, which should have 15 independent experts – though suggested categories are academics, trade unions and small businesses. Read more

States in northern Europe have formed a new group to boost financial stability, the Nordic-Baltic Stability Group. Members – Norway, Sweden, Finland, Estonia, Latvia, Lithuania and Iceland – hail from in and outside the EU, and in and outside the euro.

Banks beware. The memorandum of understanding says members will keep tabs on – and share – information about significant banks, draw up risk assessments in a common template, and share the burden when things go wrong. Faced with cross-border banks and the risks they pose, states are fighting back:

The financial integration between the Nordic and Baltic countries warrants deeper cooperation

 Read more

Canada’s is the third central bank in a week to cite increased downside risks to the economy. “The overall level of risks to Canadian financial stability has increased” in the past six months said the Bank of Canada’s financial stability review. Read more

Extended periods of low interest rates increase the amount of risk banks take. Monetary policy may influence banks’ perceptions of – and attitudes towards – risk in at least two ways: (1) directly, through the search for higher yields, especially where return targets are nominal; and (2) indirectly, through the impact of interest rates on valuations, incomes and cash flows, which can in turn modify how banks measure risk.

So monetary policy is not fully neutral from a financial stability perspective. It is important that monetary authorities learn how to factor in the effect of their policies on risk-taking, and that prudential authorities be especially vigilant during periods of unusually low interest rates, particularly if they are accompanied by other signs of risk-taking, such as rapid credit and asset price increases. Read more