If the big banks wrote New Year's resolutions, they would start with: We promise never to lose billions again, and so we're reorganizing our risk controls. UBS is doing it. So to is Citigroup. And in today's Wall Street Journal, Merrill Lynch's John Thain waxes almost poetic as he describes various new committees designed to make sure the Thundering Herd doesn't go over the cliff again. Were risk controls bad?
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Well, by definition. But be wary of self-serving pronouncements. First, it's a way to signal that the bank has changed - even if most of them will eventually sin again in a new way. Two, it provides a cover for slashing costs. Three, it suggests that the problems were structural and bureaucratic, and not driven by the eager rush for huge, easy profits. The fact is, risk controls are only as good as the fallible folks who oversee them. And risk management isn't about controlling "risk" as much as allowing the bank to take on more risk, thus maxing out reward. Just because Goldman Sachs could control its binge tendencies doesn't mean the rest of the Street will, no matter how many times they move the chairs around - Robert Teitelman
See Merrill Lynch story from The Wall Street Journal
See UBS story from The Financial Times
