Is it possible to heal the banking banking supervision of corporate investment banking to significantly reduce the dramatic effects of the next global financial crisis for the national economy and society? Is it too late for that?
Of course, this question should be answered in the negative, that it is never too late to repair the operation of any system that is supposed to serve people. But whether the scale of mistakes made in the past has not generated the unavoidable pursuit of a global financial crisis that is even more dramatic in the negative consequences for entire economies and societies. A crisis that will start with the spectacular collapse of one of the largest financial institutions, a bank or an investment fund. A globally operating financial institution that will lose playing "poker" on international capital markets with other investment banks. Some of these others earn from this crisis by winning this "global poker" and real economies will again plunge into a multifaceted economic crisis, debt crisis, a period of deep recession, rising unemployment and falling income of citizens. Is the capital flow in this way through these games, games in "global poker" on the capital markets played between the largest investment banks is economically effective? Well, it is not an economically effective process, it is a process harmful to economic development. So why are these games in "global poker" conducted? Is it only because in the process of excessive, secondarily realized liberalization of supervisory standards over financial systems implemented in the 90's, allowed to create too large, increasingly globally and monopolistic investment banks? In my opinion, not only because. Not only the scale of operations, not only the large share of capital compared to the financial system and the entire economy is a serious threat and a crisis-generating factor. Also important are the elementary rules of risk management, which are forgotten, ignored at certain organizational levels of the financial institution or financial system management.
Analysis of the origin of the next global economic crisis
Currently, forecasting systems are being developed regarding forecasting future trends of economic processes based on various analytical, not only economic, determinants. Personally, I also support the thesis about the impact of various cosmic and atmospheric phenomena on various events that take place on Earth in the field of economy, economics, politics, etc. On the other hand, because sources of the global financial crisis I mainly researched in terms of progress (or rather lack of it) ) in the field of improving the credit risk management process, implementation of modern IT solutions streamlining these processes, filling gaps in legal regulations developed in financial supervision institutions in relation to technological development of transactional, corporate and investment banking, creation of new derivatives etc., so I add to this type of analysis the issue of the analysis of the process of improvement of systemic management, banking credit risk. Unfortunately, the strong investment banking banking lobby influencing the politics of the world's largest economies is accepted by the government establishment, because monetary policy, periodically regulated lending policy, increasingly liberalized, transactional modernization, electronically and disseminated investment banking are areas treated as "universal magical tools" that can be used as a determinant for economic growth as part of state intervention. In this respect, there is a lack of full information flow in the area of growing credit risk and the fast approaching new global financial crisis between the transactional level of sales of banking products and the level of monetary, credit and financial system security at national and supranational level. According to the demands of the classical economy, liberalism at the transactional level of the sale of banking products should not be limited by state intervention at the level of the entire financial system. But the exception in this regard is the issue of the security of the financial system. If, secondarily, the extremely liberalized principles of systemic security periodically lead to an increasing financial crisis in investment and credit banking, why should the costs of these errors be spread across entire economies? Why is it that investment banks in economic crises, which often cause them to earn money from them, and the costs are repaid by entire societies, people lose their jobs and many years of experience of their lives? Therefore, because these investment banks have genuinely monopolized the systemic credit risk management system. They no longer serve the economy, but try to shape economies according to their investment strategies. The question that now arises is whether this harmful and crisis-provoking process can be reversed, corrected before the emergence of the next global financial crisis? Is it already too late and only one of the next financial crises, which will lead to the collapse of not one but a few major banks and investment funds will make it possible to repair damages resulting from errors that politicians began to make in the 1990s liberalizing then secondary issues of banking supervision systems? If it is only in the situation of the next global economic crisis, then how dramatic are the consequences for entire national economies, for societies, for people? It is not easy to predict this issue, but it is almost certain that it will be very dramatic, above all economically and socially, but perhaps also politically, strategically and militarily for many countries.
It is never too late. The banks try to beat the system, so the regulator needs to outpace the crooks.
Thinking of a country without government and no capital flow with other countries, the amount of resources (money) is divided with people and institutions within the country, especially the banks. So when some have a lot of others they have difficulties. So when the banks get their exorbitant profits the population suffers the consequences.
Already thinking about periods of crisis everything depends on the strategies adopted by the banks, because for some the crisis is a threat while for others the crisis is an opportunity for new gains.
Crises will always exist, and survival depends on management to overcome them.
When it is believed that few lobby groups are influencing other governments it may go against their interest some time later. It may lead to more financial crises. If we can study such possibilities, it can be avoided. Hence it is never late to take research based measures.
Not all. I have already stated in an earlier submission that the national central bank and international bank of settlements etcetera have expanded the scope of their supervisory functions. I think that we should be more concerned with providing suggestions for enhanced supervisory activities, efficiency and effectiveness. In related development, emphasis should be in the area of regulators from low-income and developing countries to build capacity and competencies to implement effective banking supervision in the interest of the global banking / economic systems. Thank you.
Thank you very much for your participation in the discussion. Your remarks, conclusions, theses, research results, scientific considerations are very interesting and enrich the discussions in this topic. Your conclusions are very inspiring to continue the discussion, because you pay attention to the key and particularly important issues of this complex issue. I invite you to continue the discussion People interested in this subject.
The issues of risk management in the context of determinants of the global financial crisis are described in the publications:
https://www.researchgate.net/publication/323244391_Determinants_of_credit_risk_management_in_the_context_of_the_development_of_the_derivatives_market_and_the_cyclical_conjuncture_economic_processes
https://www.researchgate.net/publication/327201116_Importance_and_implementation_of_improvement_process_of_prudential_instruments_in_commercial_banks_on_the_background_of_anti-crisis_socio-economic_policy_in_Poland
https://www.researchgate.net/publication/327201132_The_role_and_application_of_Keynesian_macroeconomic_anti-crisis_theories_in_the_context_of_development_of_the_financial_system_in_Poland
https://www.researchgate.net/publication/320074785_THE_SHADOW_BANKING_AS_AN_EXAMPLE_OF_INEFFICIENCIES_IN_THE_FUNCTIONING_OF_THE_BANKING_SYSTEM_IN_POLAND
I invite you to discussion and cooperation. Greetings
Dariusz Prokopowicz
Analysis of the origin of the next global economic crisis
Currently, forecasting systems are being developed regarding forecasting future trends of economic processes based on various analytical, not only economic, determinants.
So, how do you or anyone for that matter even have a hang of what is NEXT Global Financial crisis going to be about?
Any Forecasting model is close to being useless and analyst have over confidence/bias in their findings because they are either not aware of do not appreciate the fact that we are living in a highly complex Systems which is getting even more complex non-linearly.
Any forecasting model that try to drive order of chaos in complex systems in a fallacy. It's very disappointing that academicians and economists disregard this very fundamental understanding and try to fit their observations in a way that their pre-conceived conclusions remain intact.
Regarding Repair of banking system, So back to my earlier point that we being in a highly complex systems, any model falls short to forecast the timing or what exactly going to cause the next financial crisis. Hence, there are no pro-active risk management that Central banks can establish beforehand. It's only when the damage is done the Central bank patches the damaged system by policies as negative feedback loop to keep the Financial Systems in Order.
Also these repairs are not One size fit all. Systems needs to be repaired as and when they are damaged. So it's no way a question of "being too late" or "too early".
Dear Ankur Sancheti,
Thank you very much for participating in the discussion. Yes, I agree with your view on this topic. However, on the other hand, there are specific forecasting models, they are used, for example, in investment banks and investment funds, and they are constantly improved. Of course, you can never predict everything. For example, how many financial institutions or specific analysts, researchers, etc. in 2019 predicted the outbreak of the SARS-CoV-2 (Covid-19) coronavirus pandemic and its impact on financial markets in 2020? Probably very few. However, the effectiveness of certain forecasting models does not lie in the fact that they are widely published and used by many actors in certain markets. Usually, currently the most effective forecasting models are those that are developed specifically for specific types of economic entities and / or specific types of financial markets, are constantly improved through the implementation of selected Industry 4.0 technologies and are used by a few participants of specific markets, i.e. most often they are economic entities, e.g. investment banks that developed specific forecasting models for their own needs. I agree with your view that there is no perfect predictive model that will take into account all aspects of specific markets, including structure, etc. in a 1: 1 modeling perspective. It is not possible. If it were not, they would be models only full mapping of reality. Progress in the field of ICT and Industry 4.0 information technologies, including e.g. the implementation of sentiment analyzes carried out on Big Data Analytics platforms, is constantly shifting the frontier of building increasingly complex, multi-faceted forecasting models based on the processing of an increasing amount of data. However, there will always be some risk of the possibility of committing various types of errors, such as an incorrectly constructed model, incorrect interpretation of data describing the functioning of specific markets, etc. However, progress is made in this matter.
Best regards,
Dariusz Prokopowicz
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