Datum faculteit economie en bedrijfskunde accountancy 1 Do banks have a future? Jaap van Manen 28 October 2008

Datum faculteit economie en bedrijfskunde accountancy 2 Topics: The mission of financial institutions Ownership and control Board responsibilities Board structures Management compensation Risk management Oversight

Datum faculteit economie en bedrijfskunde accountancy 3 Credit crunch Banking crisis Financial disaster Lack of prudence: Risk underpriced Too much prudence Risk overpriced

Datum faculteit economie en bedrijfskunde accountancy 4 Decrease of prudence asset inflation Increase of prudence asset deflation Asset deflation + leverage equity disaster

Datum faculteit economie en bedrijfskunde accountancy 5

Datum faculteit economie en bedrijfskunde accountancy 6 Salesmen dressed as advisors Services Mortgages Life insurance Investments Actors Employees “independent” intermediaries Remuneration Bonuses Fees Discounts Transaction driven b2b vs b2c

Datum faculteit economie en bedrijfskunde accountancy 7 Managers dressed as bankers Shareholder value Bankassurance Multichannel One stop shop Remuneration: Complicated Value driven Upward potential Downward risk restricted transaction driven risk management: a matter of compliance

Datum faculteit economie en bedrijfskunde accountancy 8 Rating agents: Businessmen dressed as professionals Requested rating Unrequested rating History as benchmark Mathematics overrated Lazy clients Remember: b2b and b2c We knew Spectacular growth of the business

Datum faculteit economie en bedrijfskunde accountancy 9 Non-executive directors Supervisors of the executives Less upward potential Many don’t have banking experience Independence paradox Freeriding with authorities?  authorities monitor prudence  authorities monitor behaviour  Authorities are better equipped:  Staff available  Access to information  Direction of research The board as a galley of hotshots

Datum faculteit economie en bedrijfskunde accountancy 10 Government as Banker Financial Institution too big to fail Politicians overestimate themselves Monitoring: Central bank, government, super non-executives Culture shock for bankers House-prices down?: New rescues needed Funds needed: The sky is the limit? Credit rating of government

Datum faculteit economie en bedrijfskunde accountancy 11 Banks as utilities Payment systems Personals savings Cash Banks restricted in services? The end of bankassurance Separation of investment banking Listed banks protected The end of one share one vote More power for directors

Datum faculteit economie en bedrijfskunde accountancy 12 Next Open Lecture Credit Crisis Thursday 6 November, 10.00am Speaker: Professor Robert Lensink Title: The effects of the credit crisis on developing countries Place: Lecture hall 0015, Zernike Building