Banking Risk Management Quotes

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Nature likes to overinsure itself. Layers of redundancy are the central risk management property of natural systems. We humans have two kidneys (this may even include accountants), extra spare parts, and extra capacity in many, many things (say, lungs, neural system, arterial apparatus), while human design tends to be spare and inversely redundant, so to speak—we have a historical track record of engaging in debt, which is the opposite of redundancy (fifty thousand in extra cash in the bank or, better, under the mattress, is redundancy; owing the bank an equivalent amount, that is, debt, is the opposite of redundancy). Redundancy is ambiguous because it seems like a waste if nothing unusual happens. Except that something unusual happens—usually.
Nassim Nicholas Taleb (Antifragile: Things That Gain From Disorder)
The more you warn your colleagues about the tail risks—the rare but devastating events that can bring the bank down—the more they roll their eyes, give a yawn and change the subject. This eventually leads to self-censorship. The system filters out the thoughtful and replaces them with the faithful.”11
Leonard Matz (Liquidity Risk Measurement and Management: Base L III And Beyond)
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But the questions not asked screamed out the loudest. Nobody brought up inflated tech valuations or risk management. Nobody seemed concerned about the tenuous economics of ridesharing. SoftBank’s $4.4 billion WeWork deal was the largest slug of capital ever committed to a start-up, but nobody asked what WeWork had to do with technology. Because nobody asks tough questions in a bull market.
Alok Sama (The Money Trap: Lost Illusions Inside the Tech Bubble)
We don’t worry about who manages the bank or what they do with our money. Even if we hear on the news that our bank has started to lend large sums of money to piano-playing cats, which we think is a bad idea, we would not feel the need to show up at the bank the next morning to ask for all of our money back. If you had lent your money to an individual and they in turn lent your money to piano-playing cats, you would demand your money back immediately. But because you deposit your money into a bank account insured by the federal government, you feel no need to keep a watchful eye on what your bank does with the money. Insurance removes the incentive for customers to police a bank. It can also remove the incentive for banks to police themselves because they do not bear the full or even the most serious consequences of their actions. Removing the natural tendencies of the market to notice and punish bad choices creates a moral hazard that may result in well-funded cats and other undetected market risks.
Mehrsa Baradaran (How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy)
Well, my dear fellow,” resumed Banks, “a daring climber like you ought to make some ascent in all this great chain.”   “Never!” exclaimed the captain.   “Why not?”   “I have renounced ascents!”   “Since when?”   “Since the day when, after having risked my life twenty times,” answered Captain Hood, “I managed to reach the summit of Vrigel, in the kingdom of Bhootan. It was said that no human being had ever set foot on the top of that peak! There was glory to be gained! my honour was at stake! Well, after no end of narrow squeaks for it, I got to the top, and what did I see but these words cut on a rock: ‘Durand, dentist, 14, Rue Caumartin, Paris!’ I climb no more!”   The honest captain! I must confess that, while telling us of his discomfiture, Hood looked so comical, that it was impossible to help joining him in a hearty laugh.   I
Jules Verne (The Steam House)
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Clive Hamilton (Hidden Hand: Exposing How the Chinese Communist Party is Reshaping the World)
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Danielle DiMartino Booth (Fed Up: An Insider's Take on Why the Federal Reserve is Bad for America)
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Dinesh D'Souza (Stealing America: What My Experience with Criminal Gangs Taught Me about Obama, Hillary, and the Democratic Party)
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Jacek Nowak was struggling to get buy-in from senior management. He was working in an industry, banking, that is known for being reticent to change. And he was trying to get them to do something about customer experience that was in some senses the antithesis of what they were used to. But by lowering the barrier to trial and driving discovery, he helped management experience the value of what he was suggesting and ultimately adopt his suggestions. Chuck Wolfe was competing against one of the largest industries in the world, whose budget dwarfed his by more than a thousandfold. And getting teens to quit smoking was something that dozens of organizations had been trying to do for decades, without much success. But by laying out the truth rather than telling teens what to do, he was able to turn the tide. By letting them be active participants rather than passive bystanders, Chuck made them feel like they were in control. He reduced reactance and got teens to convince themselves. Nick Swinmurn needed a way to help a small start-up get off the ground. Shoesite.com was running out of money and they needed to change consumer behavior—fast. But rather than trying to convince people or spending funds they didn’t have on splashy ads, they removed the roadblocks. They used free shipping (and returns) to let potential customers experience the offering firsthand. By lowering the barrier to trial, Zappos reduced risk, alleviated uncertainty, and built a billion-dollar business. And along the way, helped usher in the world of online shopping we’re all so familiar with today.
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Charles T. Munger is fond of saying that there are “more banks than bankers.” A competitive advantage based on a willingness to make loans in an instant would be anathema to old-fashioned bankers. Of particular concern to us is the extent to which Irish bankers engage in the hard-sell to investors. One of them declared at the conference we recently attended: “I am here unashamedly to sell you X bank!” This rather goes against our preference for bankers as cautious individuals, obsessed with long-term downside risks. As we have seen in many other businesses, an obsession with growth, combined with overpromotion, is likely to end in tears. As to when this will happen, we must wait for time, Ireland’s proverbial story teller.
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