One simple explanation for the cause of the global financial crisis is that it resulted from a "failure of trust." Even Treasury Secretary Timothy Geithner and Director of the National Economic Council Lawrence Summers said so, in a Washington Post op-ed piece from mid-June that outlined the Obama administration's proposals for a new financial services regulatory framework. "Like all financial crises, the current crisis is a crisis of confidence and trust," they wrote. "Reassuring the American people that our financial system will be better controlled is critical to our economic recovery."
There's no denying that trust is in short supply in financial services these days. Even the regulators aren't getting along -- The New York Times reported recently on the acrimony that has developed between FDIC head Sheila Bair and John Dugan, comptroller of the currency. In recent weeks there have been reports of e-mails among government officials questioning the motives and actions of Bank of America CEO Ken Lewis during BofA's negotiations to acquire Merrill Lynch. And there's no denying that restoring trust — not only among the public and the financial services industry but also among financial institutions themselves, as well as with regulators and politicians — is the foundation of the steps the financial services industry must take as it tries to move out of crisis to stability and perhaps even recovery.
Time will tell if the administration's proposals (which would, Geithner and Summers wrote, raise capital and liquidity requirements for all institutions, impose "robust" reporting requirements on issuers of asset-backed securities, create a "stronger framework for consumer and investor protection across the board," establish a mechanism for the "orderly resolution" of financial holding companies whose failure would put the stability of the financial system at risk, and push for improved regulation and supervision worldwide) will help or hurt. In the wake of the financial meltdown, trust can be mistaken for acquiescence, and it is hard to be confident about the ability of all these agencies and regulatory bodies to "play nice with each other" and find that necessary balance between collaboration and rolling over.
It might be instructive for the players to look at bank IT organizations, which have struggled for years to build credibility and trust with their business counterparts, only recently being viewed as true strategic partners. But when was the last time IT was consulted in advance about industry-changing initiatives?
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio