God, Greed & Gaming

By Raymond J. de Souza, and Mark Carney, Roger Martin

June 7, 2013

In God we trust. Capitalism? Ummm, these days not so much. Mark Carney, Roger Martin and Father Raymond J. de Souza on restoring faith in the financial world.

de Souza joined Mark Carney, Governor of the Bank of Canada, and Roger Martin, dean of the University of Toronto's Rotman School of Management, for a Convivium forum on the fundamental threats that still beset global capitalism almost five years after the 2008 financial crisis If the task of financial reform is about virtue, which is about habitually making good moral choices, then it will be a project for which the resources of the entire culture, not just the market or the world of finance, will be required, including the resources of faith The FSB has identified those banks that are systemically important at the global level and developed a range of measures that, once implemented, will help to ensure that any financial institution can be resolved without severe disruption to the financial system and without exposing the taxpayer to the risk of loss Professor Martin calls this great moral tradition the "civil foundation," at least I interpreted him to say that in his book Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL I've written, in a few columns over the last few years, about the Governor himself and about the financial crisis, and in making those comments, I've sometimes said, only half-joking, that the Governor of the Bank of Canada has become something of a preacher, talking about virtue and moral reform Co-located trading servers and Repo 105s: these are but two examples of gaming the modern capital markets game The prevailing view of our economic games seems to be, so long as we have rules and we enforce them, the game will be just fine One of the most important initiatives to improve clarity is the work of a private sector group, the Enhanced Disclosure Task Force, which was formed at the encouragement of the Financial Stability Board To better align incentives with long-term interests of the firm and, more broadly, society, the Financial Stability Board developed Principles and Standards for Sound Compensation Practices Several major foreign banks and their employees have been charged with criminal activity, including the manipulation of financial benchmarks, such as LIBOR, money laundering, unlawful foreclosure and the unauthorized use of client funds As the new Basel capital rules are implemented and the reliance on ratings agencies diminishes, market infrastructure improves; and as banks—and, crucially, their investors—develop a better appreciation of their prospects for risk and return, business models are beginning to change However, in the run-up to the crisis, highly complex chains developed linking low-risk money market funds with high-risk structured investment vehicles (SIVs) On May 3, 2013, at the Toronto Board of Trade in the heart of Canada's financial district, Convivium Editor-in-Chief Father Raymond J To restore trust in banks and in the broader financial system, global financial institutions need to rediscover their values What we learned in the financial crisis was that the argument thought to be valid and descriptive, accurately descriptive for so long, was that many actors, including powerful ones, knew that what they were doing would mean a great cost would have to be paid

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