Preventing Another Global Financial Crisis

Preventing Another Global Financial Crisis

Seven Pillars Institute works with and supports the Transparency Task Force (TTF) to promote greater transparency in financial services around the world. Dr. Kara Tan Bhala is a Transparency Task Force Ambassador and a member of both the TTF’s Team Americas (dedicated to promoting transparency in North and South America) and team PISCES (focused on Purpose, Impact investing, Sustainability, CSR, ESG and SRI.)

In February 2018, the TTF’s Financial Stability Team led an important meeting at the British House of Commons, presenting its White Paper entitled “Ideas to help reduce the chance of another Global Financial Crisis.”

The event was productive – various members of our Financial Stability Team presented as did the following:

  • Sir Vince Cable, Leader of the Liberal Democrats
  • Francis Evans, Assistant Director, Department for Business, Energy and Industrial Strategy
  • Neil Esslemont, Head of Industry Liaison, The Pensions Regulator
  • Geoff Tily, Chief Economist, TUC
  • Matt Gurden, Chief Actuary, Government Actuary’s Department
  • Tracy Vegro, Executive Director of Strategy and Resources, Financial Reporting Council
  • Jonathan Davidson, Executive Director of Supervision, Financial Conduct Authority

There was also senior representation from The Bank of England.

Furthermore, TTF’s White Paper has initiated the creation of a new All Party Parliamentary Group on Financial Stability (APPG).

This comment from Lord Lindsay sums up the APPG initiative nicely:

“There is universal shared interest in avoiding another Global Financial Crisis so I am pleased to play my part in supporting the new All Party Parliamentary Group on Financial Stability. We wish to consider ideas from a wide range of stakeholders; the strongest ideas will be developed into fledgling policy proposals for consideration by Regulators, Government Departments and so on. Hats off to the Transparency Task Force for their compelling White Paper on the topic and for suggesting the new APPG be formed.”

Highlights

A simple way to convey the terrible impact of the GFC is through just one statistic from research carried out by Oxford University in 2014: the crisis led to more than 10,000 extra suicides. This number is likely a conservative one. The research was carried out across Europe and North America and attributed the increase in suicides to the consequences of a far higher number of people losing their jobs, having a home repossessed or falling into serious debt.

Furthermore, the inevitable reaction to measures put in place by governments has impacted the world’s political landscape too. How much of today’s environment can be traced directly back to the GFC? Maybe it explains Brexit? Maybe it explains the shifts away from the moderate center? Maybe it explains the ascendancy of anti-globalization and national protectionism.

It is therefore, eminently sensible to prevent another GFC from occurring. Any serious attempt to protect the system requires first, a good understanding of the causes of market crashes and second, a systematic approach to evaluating the merits of potential policies and practices to increase financial resilience, protection and stability.

Preventing Another Global Financial CrisisSome solution-oriented ideas to prevent the next GFC are:

  1. Increase transparency in financial services
  2. Introduce specific indicators, metrics and guidelines to increase transparency e.g. transparency labels to manage product complexity
  3. Evaluate people, culture and conduct risk
  4. Develop far more effective values-based rather than rules-based codes of conduct that are rigorously practiced. Consider introducing Fiduciary Oaths and Fiduciary Standards for the sector.
  5. Ensure all the direct and indirect consequences of climate change are properly recognized as sources of potential financial instability.

You can read more details of the White Paper and the discussion in the February 2018 issue of the Transparency Times.

If you interested in the work of TTF’s Financial Stability Team and the new APPG, please get in touch with Seven Pillars Institute or TTF.

 

Thank you to Andy Agathangelou for his contribution.