New vision for the future of financial services

Green paper to be produced on reforming financial services

Five years on from the anniversary of the Lehman Brothers collapse, academics, regulators and senior banking figures will meet to develop a vision for the future of financial services.

The high level event Lehman Brothers – Five years on is being hosted by London Business School’s finance faculty and takes place at the School on the 17 September.  Among the high profile panellists who will discuss the record of progress and how boards and regulators can better anticipate bank failure are:

• Andy Haldane, Executive Director, Financial Stability, Bank of England
  

• Sir Win Bischoff, Chairman, Lloyds Banking Group plc
  

•        Lord Myners CBE, Executive Fellow, Finance, London Business            School and former Minister, HM Treasury

David Pitt-Watson, Executive Fellow, Finance, London Business School, says: “It is five years since the collapse of Lehman Brothers. Since then there has been a plethora of regulation, whose aim is to prevent such a collapse ever happening again. Yet there is an uncomfortable feeling, that despite this activity, the financial system has not been reformed in a way which makes it safe, or makes it efficient.”

Part of the problem, London Business School academics argue, is that overly detailed rules provide precisely the loopholes that financial institutions have proved themselves extremely adept at exploiting and ignore vital, softer information about the character of risky loans and leverage ratios.

“There is something of Heisenberg’s Uncertainty Principle in the financial services sector”, says Associate Professor of Finance, Vikrant Vig. “As soon as you throw light on a problem, the behaviour of the subject changes making it hard to get a natural observation -- as soon as you create a rule banks change their behaviour to game the system, and you find yourself looking at a considerable challenge.”

“Regulations that rely on this type of predictive model to assess default risk can be undermined by the actions of market participants.”

Professor of Finance, Julian Franks who gave evidence to the Parliamentary Commission on Banking Standards, argues that it is critical that we get banks off the opium of return on equity and onto return on assets. “Resolution regimes alone are unlikely to constitute the full solution”, he says. “What we need if we are to avoid a similar crisis is structural change.”

As the UK Government gears up to oil the wheels of alternative finance, delegates will debate a new shape for the financial system in the 21^st century, which could fundamentally change the rules of engagement.

The event will be held under Chatham House Rules and pre-agreed media interviews will be available.