Resumen de Third Annual Program For Financial Studies Conference Columbia Business School: Navigating the changing landscape of finance.
In this edited transcript of his keynote address at Columbia Business School's Third Annual Financial Studies Conference, the Chairman and CEO of Morgan Stanley begins by tracing the origins of the 2008 financial crisis to the overleveraging of bank balance sheets that were filled with risky and illiquid assets. With the leverage of most large banks rising well above 30 times, reductions in asset values of as little as 3% would have been enough to wipe out their capital. And as the value of the assets began to be questioned, so was the banks' ability to roll over their short-term debt. Contrary to the popular perception, however, the fundamental problem with U.S. banks had almost nothing to with their size, or their complexity. It was in fact the smallest of the large U.S. financial institutions that got into the most trouble-while the largest, JPMorgan Chase, saw the least destruction of value during the crisis. What's more, U.S. banks are relatively small and focused compared to the large universal banks and highly concentrated banking systems that dominate most of the world's developed economies. Complexity itself was not really the culprit either. Some complex banks managed their risks effectively, while many conventional deposit-takers and lenders failed, reflecting significant differences in the quality and judgment of management. The response of the U.S. government to the crisis, mainly in the form of TARP, proved highly effective in limiting the damage to banks and the global economy. And to reduce the probability of a future banking crisis, U.S. regulators are now well along in implementing a new three-part regulatory model that consists of the following: (1) significantly higher capital and liquidity requirements that are designed to keep banks from getting into financial trouble; (2) annual report cards called 'CCARs' (Comprehensive Review and Analysis) for all banks deemed 'systemically important' in which bank balance sheets are subjected to 'stress tests' involving scenarios worse than the recent crisis; and (3) 'resolution plans' for reorganizing banks that get into trouble and whose capital ratios fall below acceptable levels. Thanks to such regulatory changes, and to the response of most financial institutions to them, the U.S. financial system has been restored to stability. In the case of Morgan Stanley, during the post-crisis period in which the firm's total assets have been cut by more than a third (from $1.25 trillion to $800 billion), liquid assets have more than doubled (from $80 billion to $180 billion), capital has doubled (from $30 billion to $62 billion), and leverage has been reduced from 35 times to 12 times. At the same time, the firm has shut down proprietary trading and other risky principal businesses while investing heavily in and expanding its most stable business-wealth management-which is expected to account for over 50% of its revenue and profits going forward. [ABSTRACT FROM AUTHOR]
