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Rise of the naysayers at the banks

  • "Five years ago, if the risk group recommended against a strategy or product, it might just be one part of a debate," says Wells Fargo (WFC -0.4%) chief risk officer Michael Loughlin. Now, "when we say no, it's usually no."
  • The naysayers are gaining power and multiplying across the banking industry as lenders bow to pressure from regulators to simplify and make safer their operations in the hope of preventing the next financial collapse. For its part, Wells has 2.3K employees in its core risk-management department, up from 1.7K two years ago, and the unit's annual budget has doubled to $500M over that period. Earlier this year, Goldman Sachs (GS -0.2%) made its chief risk officer part of the trader/rainmaker-dominated company management committee for the first time ever.
  • The changes are expensive and come at a time of sluggish loan growth and trading revenue, but the banks have no choice as regulators wield the power given them by Dodd-Frank.
  • KeyCorp (KEY +0.1%), for instance, used to pay loan officers for meeting  profit goals. Now those bonuses can be lost if their work falls short of new risk-management standards. It's no doubt one factor behind sharply lower loan commitments for construction and real-estate development.
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Comments (4)
  • cjay18
    , contributor
    Comments (160) | Send Message
     
    Bill Black would not approve of a WSJ headline that refers to risk management individuals as naysayers. I sure as hell don't either. It's a pejorative term intended to have a whack at the folks who are trying to keep [fill in this blank with company name, bank, hedge fund, college endowment etc] from doing the next front page stupid thing so that some managers can gorge on the temporary "profits" that result from the troubling activity. Murdoch and his Fleet Streeters are a pox on America.
    26 Jun, 03:23 PM Reply Like
  • ote
    , contributor
    Comments (171) | Send Message
     
    Regulation does not replace quality management. I watched my company add a lot of no value accountants as a result of sarbanes oxley. Guess what, sarbanes didn't stop the Great Recession. Bad or corrupt management always outwits regulation. Dodd Frank will not stop the next screw up. It will just add cost. The is always about quality of management. The lessons of hard bankruptcy provides the discipline to management, directors, bond holders and share holders. If institutions are too big to fail, bust them up. Bankruptcy produces discipline to the rest of the crowd.
    26 Jun, 07:03 PM Reply Like
  • julesthecat
    , contributor
    Comment (1) | Send Message
     
    "Naysayers" is actually quite a succinct, accurate and appropriate term to use. It refers to the natural bias of risk control people when faced with a decision. From my experience, their priorities are 1) job preservation, 2) personal risk deflection, 3) the business. Just as those that originate risk have a natural bias to get things done (priority being generally personal reward) those risk management have a bias towards turning down or referring the transaction to another control group so they are not alone in signing off. So "naysayers" is bang-on the button and I think most risk people I have dealt with would be happy with the description. It's always been the same - but now the pendulum has swung to the extent that the naysayers have a much louder voice. In general the same deals get done as would be done with a less powerful risk management influence - its just a lot harder and more expensive to get them done now.
    27 Jun, 04:16 AM Reply Like
  • pigeonguy
    , contributor
    Comments (100) | Send Message
     
    The pendulum will swing the other way in time, not because the love of banks but for more growth in the economy.
    29 Jun, 11:43 PM Reply Like
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