Cross-Border Trade and Business Regulations USA and Canada

For some people who work in "risk," all they have to do is "sit, observe, and listen." Like listening to Ron Johnson, who used to be the CEO of JC Penney. I think it only took one conference call to see that JC Penney was a bad idea. I also remember that the stock went down a lot during his time there and none of his crazy ideas worked out. Why? He wasn't fit for the job, that's why. How did you find out? Because everything he said and did, as well as what the company could offer financially and what was needed to stay in business, didn't add up. And billing is really simple. You don't have to be a PhD in physics to know when your company is going to have trouble. It's game over if less money is coming in than going out. If you do a rights issue to get money and tell investors things will get better, you can fool them once, but they'll want their money back at some point. After that, you won't be able to "raise cash" anymore. Why? Because you didn't pay attention to the real risk the whole time. It was right there in front of you in this case.

Risk is not a number or a chance

In a scientific sense, risk is just an idea. And if you understand what risk means in a general sense, you can turn that into pnl. In addition, the better you understand risk, the better you are at making pnl.In academic literature and other books from around the world, I think the word "risk" is not described very well. Even worse, danger doesn't mean nearly as much as it used to. This is because risk (even more so now than before 2008) can't happen in the future because all officials did after things went wrong was make banks follow strict, hard-coded rules to "manage risk" of another possible bailout that would hurt regular people again. So;

Going forward, capital buffers had to be x% bigger.A VaR couldn't be 95% anymore; it had to be 99%.All of a sudden, regulators wanted different risk measures from banks at different times.The supervisor didn't want to look at how to "define risk" for each bank, so they didn't. They tried to be as efficient as possible, which meant coming up with a few risk metrics that are simple to calculate and understand (so every bank can give them). This way, as a regulator, you can compare them to see if they are similar. Every bank uses an equation to come up with a number. But just because the number is the same, that doesn't mean it means the same amount of risk. You're crazy if you think it does.

As for the regulator, having "comparables" and making fancy charts to rank from 1 to 10 the highest values makes them look like they are doing their job right, but that's not really the case. Please forgive me, Lord.As a bank, we literally (I remember signing off on a one-pager of our PV01s per ccy/bucket to governance and staff), and then, surprise, the PRA comes to visit and talks about what "they think is risk."

They really don't understand It seemed impossible

I almost shat my pants.As of 2008, there have been a lot more "fluffy" risk measures and controls. If they are checked, they start with the junior employee at the desk, who gets a false sense of security. It was all that matter to him to stay "within his limits." But he's just a junior, so what does it matter?When his boss gives him the weeklies, everything is "green" because any other color will make people wonder. "Everything was green" at the monthly ALCO or BOARD meetings. Wow, after that we went from the bottom to the top thinking "we are safe." If you wait long enough, everyone will start to believe that crap for real, from the bottom to the top. It really is scary! Everyone wasn't able to ask a simple but important question: what does this risk mean? What does it mean? Could this risk, whatever it was, really make it hard for me to run my business?

That didn't happen.This is also something I've seen in M&A. Combination of two businesses. On paper, everything looked very clear. Adding both of them together in one company seemed like the best idea when all the numbers were added up and any possible benefits were looked at. They forgot one important thing, though: cultural variety. A subject that was "hot" long before the media began shoving it down our throats everywhere. Putting two very different work styles together will hurt the company, not help it. There is enough proof of this in the history books. People looking for their souls at the Big 4 started to understand - haha, I got you. Those guys don't understand; they just wanted money. Everyone knows that you can't make two cultures that are at odds with each other work together. So make up some nonsense, put it in a PowerPoint, and sell it to clients: "a workshop about cultural integration," which was required for everyone on the CF/M&A floor.The next day, auditors would show up.

Someone did not sign off on a control on time

Ah, an audit point. We make a point for fraud. We got you!You felt bad for them. They felt like they had won over some silly portfolio in a company that didn't have any real value left compared to the bank's whole portfolio and was already being thrown away.Auditing has also gotten much worse over the last 20 years. They take part in the never-ending cycle of strange control mechanisms that are used in pnl producing functions in a bank.Their skills have gotten worse toward; was a box checked? Yes? Wonderful. Did the short-term money markets desk send out their pnl every day like some silly internal policy says they have to? Wonderful. They would ask something silly like

Please send us 20 samples from the last six months.

Because their jobs are in danger because of technology, you tell some nutjob in reporting or controls in India or another country where work is outsourced to do that work for you.The inspector looks at 20 examples. Sees that every button was pressed. Everyone signed off. Nothing was taken too far.