James Surowiecki Quotes

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.

Investment banks manage to go bankrupt through their investment-banking activities, commercial banks manage to go bankrupt through their commercial-banking activities.

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

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.

The very nature of finance is that it cannot be profitable unless it is significantly leveraged... and as long as there is debt, there can be failure and contagion.

Equity is the cushion that protects financial institutions from unexpected changes in the value of their assets. The greater the leverage, the smaller the losses required to wipe out a company's equity, leaving it without enough money to repay the people who hold its debt.

Bailing out every bank that fails makes the system riskier, not safer.

At the heart of banking is a suicidal strategy. Banks take money from the public or each other on call, skim it for their own reward and then lock the rest up in volatile, insecure and illiquid loans that at times they cannot redeem without public aid.

Compelling large banks to hold more capital reduces their risk of failure, but as the last financial crisis [the Meltdown of 2008] demonstrated, during a wide-spread panic, investors and lenders lose all faith in the values banks have assigned to their assets, and many mistrust the banks that claim to have enough capital.

One of the most important causes of economic crises is “running liabilities”, or short term debt that the government does not insure. The U. S. financial sector holds trillions of dollars of such debt, including uninsured bank deposits and the short-term liabilities of other financial institutions, such as overnight loans…. Amongst the potential causes of the next crisis, the massive amount of short-term debt ranks as the most probable.

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.

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.

The chances of a bank going out of business are extremely slim, but it's always a good idea to spread around major sums so every penny is backed by insurance.

It's hard to tell which assets will be toxic. The best way to ensure that only shareholders and banks feel it is have adequate capital.

As long as there is cash, and the economy is running, all is well. But as a bank, we'll have to test, experiment, try a hundred different things. A few may work, a few may fail, but we have to experiment and try.

In the financial system we have today, with less risk concentrated in banks, the probability of systemic financial crises may be lower than in traditional bank-centered financial systems.

If nobody can sell mortgage-backed securities based on trillions of dollars of unpayable instruments, there's a lot less risk in the overall system.

The American banking system, which at one time extended productive loans to agriculture and industry, has today become a giant betting machine

Banks always want their capital requirements to be as low as possible, so they can take more risks, which can enable them to make more money – and reap bigger bonuses for executives.

Global banking’s current structure generates an unjust distribution of risks, where losses are socialized.

Proprietary trading does not belong in banks with FDIC insurance.

Prior to the 2008 recession, many financial institutions were engaging in 'proprietary lending,' where a bank would invest funds for its own gain instead of earning revenue through commission by trading on behalf of clients.

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

I spent my whole career thinking about risk, markets, infrastructure, and regulation. I had seen the financial crisis unfold, and I had seen the credit derivatives market get operationally ahead of itself, which resulted in systemic risk counterparty exposures. I began to believe that distributed ledgers had the capability to tackle that problem.

Indeed, better risk management may be the only truly necessary element of success in banking.