Grieving … and the US Banking Reforms

I was trying to think of the future of banking and a model for making this work.

This in the context of yesterday's
US regulatory reforms announcements (see next blog: “things worth reading”, for the full details of these reforms), and so I scrabbled about wondering what happens as we go forward.

Then, bearing in mind that this process began with the death of Lehman
Brothers due to the issues of Credit Derivatives and the US subprime
markets, I think I found a model that may lead the way.

This is based upon the work of Elisabeth Kubler-Ross, who places grief into five stages: denial, anger, bargaining, depression and acceptance.

First, Denial.  Denial is only a temporary defense and is used extensively by a bank CEO on the defensive. Examples include: “We don’t do sub-prime so we have not perhaps been exposed to some of the more boisterous elements of the market that others have.”  Fred Goodwin to City Analysts, June 2007

Second, Anger.  The second stage is when the banks and regulators recognise that denial cannot continue. Examples include: “It's more devastating than I care to discuss. There's a lot of anger and feelings of uncertainty.” Lehmans employee, asked how he felt when clearing out his desk, September 2008.

Third, Bargaining.  The third stage involves the hope that death can somehow be delayed. Examples include: “The world needs China and the US to pull together rather than rattle their sabres at one another. How can the joint interests of the two economies be brought to the fore when the tendency is to turn inward?
There is a solution: a grand bargain between China and the US on macroeconomic policies and international economic affairs.” Eswar Prasad, Financial Times, January 2009.

Fourth, Depression.  During the fourth stage, the industry begins to understand what death has meant. Examples include: “Mike Mayo’s Seven Deadly Sins of Banking, April 2009: Bank Losses To Exceed Great Depression.  The seven deadly sins of banking include greedy loan growth, gluttony of real estate, lust for high yields, sloth-like risk management, pride of low capital, envy of exotic fees, and anger of regulators.”

Finally, Acceptance.  This final stage comes with peace and understanding of the death, what it meant, and how to live with it. Examples include: the free market was "the most powerful force for our prosperity" but "we should not accept a system that consistently puts [us] in danger". Barack Obama, announcing the bank regulatory reforms yesterday.

Let’s hope the reforms work to avoid any more deaths in the industry.