Is the international financial system safer now than it was five years ago? Speakers for this Davos Panel at the World Economic Forum (WEF): Douglas Flint, Martin Wolf, Paul Singer, Antony Jenkins, Anat Admati.
If readers have not done so already, we have a great preview from Paul Singer on this debate, so please check out the article here.
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Paul Singer plans to argue that markets are not safer post crisis.
Douglas starts off by stating that markets are safer now than they were pre-crisis. He notes that 1. the system can withstand shocks better now 2. Behavioral changes have contributed to a more sound financial system.
Douglas notes that although the system can withstand shocks better, that does not mean that no risk exists. However, there is much more transparency in terms of counter-party risk, which was not the case in the OTC market. Regulators can now place penalties on those who take too much risk, such as Volcker, Vicker etc. The UK has gone even further with separating bank activities.
Douglas thinks the most important part (which gets little focus) is that boards and management are spending much more time focusing on risk.
Paul Singer is the second speaker. He says that relatively modest improvements cannot make things safer. He does not believe that the markets or financial systems are safer. Some regulation has been in the right position, some in the wrong. However, derivatives still pose a big risk, and there has been no progress in this area.
Notional amounts of derivatives is in aggregate is 36% higher than pre-crisis. Nobody knows the exact number and notional is not perfect, but nothing has changed from 2008.
See the full speech from Paul Singer below.
The full video of the panel can be found below.