Alan Greenspan Quotes

You want banks to take some risk, but intelligent risk.

The basic theory of bank regulation is that, left to their own devices, bankers would make banks too risky, so regulators and supervisors are there to make banks more boring. A bank is, roughly, a big pot of assets bought with depositors’ money; the bank owns essentially an option on those assets. If the assets go up, the bank gets a highly leveraged return; if the assets go down, the losses are largely the depositors’ (or the taxpayers’) problem. “Heads I win, tails you lose” … So banks have incentives to buy high-risk, high-return assets with as much leverage as possible, and risk-based capital regulation and prudential bank supervision counteract those incentives. The bankers — who own stock in their banks and get paid bonuses for making money — push for more risk and more volatility, and the bank supervisors push back.

Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules. To depart upon any occasion from these rules, in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous, and frequently fatal to the banking company which attempts it.

Complexity and interconnectedness matter as much as size in assessing risk in banking.

Loss-absorbing capacity among banks is substantially higher as a result of both regulatory requirements and stress testing exercises.

I think that's something that investment banks have worried about for a long time and are continuing to worry about, but it's not an easy solution when you have lots of people betting the company's money, how do you really allocate those risks? How do you make sure that the people that take the risks are feeling the risks in an appropriate kind of fashion?

A bank needs models to measure risk. The problem, however, is that any one bank can measure its risk, but it also has to know what the risk taken by other banks in the system happens to be at any particular moment.

Regulation is necessary, particularly in a sector, like the banking sector, which exposes countries and people to a risk.

The fundamental problem with banks is what it's always been: they're in the business of banking, and banking, whether plain vanilla or incredibly sophisticated, is inherently risky.

Our entire approach to the banking and financial services business is risk-adjusted returns. We believe that in most parts of the world, and including pockets in India, banking tends to mis-price risk.

I've been telling anyone willing to listen that banks have a tendency to sit on time bombs while convincing themselves that they are conservative and nonvolatile.

Fannie Mae may have conformed to the rules but the rules didn’t conform to reality. A major bank or financial institution could meet every single regulatory requirement yet still be at the risk of collapse.

Banking should be boring..

We have put in place policies through supervision and regulation that has greatly enhanced the safety and soundness of the banking system.

A financial institution has the task of taking risks, and if it's a well run institution - say, Goldman Sachs - it tries to cover the potential losses to itself, but only to itself.

Operational risk is the risk of loss resulting from bank operational failures, such as rogue traders, fraudulent sales practices, and cyber risks. Operational risk capital is money or assets that banks have to hold to shield the economy from the consequences of these kinds of failures.

Without a doubt, we do support a robust framework for aggregate capital and liquidity and stress-testing.

I think the people who've been the most overconfident in our business in the last decade have been the people that called themselves risk managers.

My client loved risk. Risk, I had learned, was a commodity in itself. Risk could be canned and sold like tomatoes.

I know many members of our community steer clear of Wall Street because of the perception that the stock market is risky, but I am convinced the biggest risk of all is not taking one.

And then at the end of the day, the most important thing is how good are you at risk control. Ninety-percent of any great trader is going to be the risk control.

The Bankers' New Clothes makes a simple, powerful argument: that banks need to raise more capital. It is entirely persuasive that the extent of their leverage makes the financial system fragile, and it clearly and patiently demolishes all the counter-arguments made by the banks and their lobbyists.

What can you do in order to save your own banks?

Risk managers and investment bankers and actually, all kinds of investors took on more risk than they expected. So there was a failure of risk management. There was a failure to recognize how much risk there was in some of these securities that people bought.

I do believe that banks are special - they are very leveraged institutions by nature; therefore, it's even more critical to ensure that the governance and the process of running a banking company are well-organised, managed and regulated.