Canadian Financial Regulator Provides Analysis
In a manner unique even amongst the most eclectic business schools, Fuqua has delivered a world-class curriculum that capably blends emphasis on a variety of subject areas, and seeks to pool opinions from the most diverse backgrounds. Thus, it should have come as no surprise that Nicholas LePan, a Canadian financial regulator, with a background in both accounting and law, came to Durham as a result of the collaboration between the business and law schools. In mid-February, Mr. LePan arrived to share his thoughts on everyone’s favorite topic – the reasons for the financial crisis – while using his native country as a model for future success.
Oddly, Mr. LePan’s tone, one emphasizing prudence and ubiquitous regulation, may have sounded overly cautious four years ago, but perhaps it should have sounded more prophetic. He alluded to a centuries old convention toward self-regulation in the United States that ultimately served to cloud much of the moral hazard inherent in the financial markets. Indeed, much of the political economic discourse in the United States evidences a population that has a troubling appetite for risk, and produces politicians and regulators who can convert this sentiment into economic policy. Contrarily, he saw Canada’s regulatory agencies, despite their modest budgets and size, as being able to effectively dissuade both banks and individuals from taking on excess risk, and, consequently, minimizing the effects of the devastating subprime crisis.
Additionally, Mr. LePan’s speech described an inescapable conflict of interests in American banks that precipitated the collapse of the industry. His research indicated that boards of directors have not been maintaining adequate objectivity, and often have incentives that do not align adequately with their companies. He felt, too, that the growth of merger activity in the preceding decade promoted excessive risk taking, while decreasing the capital buffers that may have prevented the crisis from becoming cataclysmic.
However bleak his depiction of the crisis may have been, his forecast for the coming years was equally ambitious. He suggested that, as in Canada, the United States government must challenge its assumption that some banks are “too big to fail,” suggesting that this leads to a brand of moral hazard that also makes banks more likely to fail. He also intimated that the lack of appropriate regulation in the United States stems from an unwillingness to adequately fund regulatory bodies and recruit talented individuals to fill these highly visible and important positions. If we are to avoid the economic tribulations that came to light in the past few years, he felt, we’ll need to collectively afford a higher degree of respect to regulatory and political bodies, even if doing so goes against long standing American economic mores.