- Talented bankers are migrating to boutique firms.
- Risk-taking ... and innovation are spreading out. "This is a good thing."
- The country may be better off if the banking industry is less concentrated.
I think one of the critical questions here is how the intelligence of these "talented bankers" can be mobilized to produce banking wealth - not just for themselves but for the banks and their shareholders, as well as the country as a whole. It is not the intelligence of the individual alone that matters, but how this intelligence is mobilized to increase the collective intelligence of the organization.
Clearly there have been many failures in collective intelligence. Banks may have failed to supervise their traders and oversee their trading risks properly. The failures were not just with the banks, but with national and international regulators.
Because the warning signs were visible for those who knew how to read them. In his book The Age of the Unthinkable, Joshua Cooper Ramo talks to some of the few people who anticipated the crisis (and did very well out of it). He recalls a conversation with a friend who had a key role in the Chinese banking system. "He explained to me how he had locked down his own financial institutions in 2007 to avoid just the sort of crisis now sweeping the globe. He was shocked that the United States had not seen it coming, had not acted. He had seen it, had felt this incipient crisis." (p 6)
Ramo also tells the story of Bill Browder, who spotted a small newspaper item in July 2007. "In New York an auction of debt from leveraged-buyout deals had failed to draw enough bidders and was shut down. To most of the investing world this looked simply like a small hiccup in an otherwise well-functioning financial system. But Browder recognized it for what it was: a sign that the world had run out of the ability to absorb new debt." (p 56)
Moving banking brains into smaller banks certainly seems consistent with a political drive towards smaller banks (see my post Does Britain need smaller banks?), but it raises two important questions. Do we care more about the intelligence of an individual bank, or about the intelligence of the banking system as a whole? And how does the kind of cleverness that was previously highly valued and rewarded by the large banks fit into the new kinds of intelligence that will now be required?