Banks’ Optimism Keeping Regulators Up at Night
Dodd-Frank and other Wall Street regulations born from the financial crisis were formed with one overarching goal: no more taxpayer bailouts. If you ask Morgan Stanley Chief Executive Officer James Gorman, regulators and big banks have done one heck of a job ensuring that reality.
With the fifth anniversary of the financial crisis around the corner, Gorman was asked about the chances of a repeat need for taxpayer bailouts. “The probability of it happening again in our lifetime is as close to zero as I could imagine,” Gorman told PBS. “The way these firms are managed, the amount of capital that they have, the amount of liquidity that they have, the changes in their business mix -- it’s dramatic.”
Yes, banks are better capitalized today than five years ago, but it’s this “all is well” belief that’s become part of the problem, according to regulators.
In its recent examination of the nation’s 18 largest banks, the Federal Reserve identified several problems, all of which fit under one umbrella: banks remain ignorant of their own weaknesses. They assess their risks too broadly, often failing to recognize their own “idiosyncratic vulnerabilities,” according to the Fed.
Some banks, when dreaming up the possibility of another crash, assume advantages over others that they believe would suffer more in an adverse economic scenario. Several even assumed market share gains in hypothetical stress tests that were submitted to the Fed.
The fight between banks and regulators has been rather one-sided since the recession. Executives simply lost too much of their leverage and were forced to get on the same page as regulators. As banks continue to get healthier, particularly with stock prices rising, executives will have more right to dig in. Expect the fight over capital requirements to be a two-sided affair.
We were given access to some insider reviews that help paint a clearer picture about what it’s like to interview at large bulge-bracket investment banks. We’ve included a snippet of the content, along with a handful of actual questions asked of candidates.
J.P. Morgan is getting smaller. Chief Executive Jamie Dimon has told his inner circle to sell off all noncore assets, or what he called “hobbies.”
Three big-name Democratic senators plan to oppose the potential nomination of Larry Summers as the next Fed chief. Summers faces plenty of questions about his relationship with Wall Street and his difficult years as president of Harvard.
Star quality in the hedge fund world boils down to four explanations: shareholder activism, skilled processing of public information, insider trading and liquidity provision.
The same question gets asked after every big M&A deal: Which bankers were “in the room” when it was sealed? During the final moments of the $130 billion Vodafone/Verizon deal, Karen Cook at Goldman Sachs and Simon Warshaw at UBS were there along with a host of maybes.
Goldman Sachs Vice Chairman Mark Schwartz just dropped $14 million on what is being called the only freestanding mansion in Manhattan. It’s not a bad looking place.
Buzz Around the Office
A man claiming to be a member of the Chicago Board of Trade got mauled by an older gentleman on a Chicago train for talking on his cell phone while in the quiet car. Threatening to cut someone in half when you are half their size is rather bold. Some language in the video is NSFW.
List of the Day: Networking Tips
While networking isn’t a science, following these key tips can deliver real results.
- Be yourself, not a caricature of what you think they want you to be. Open up and let them in.
- Start by asking questions about them.
- Offer to be their resource.