Whether it’s 2015 or a few years later, this sounds like a fairly likely scenario. The financial reform was gutted by the bankers who threw money at lobbying to limit the extent of the reform. The Democratic reform was mild but now we have Republicans in the House who want even less oversight. Of course this can’t end well.
Wilkinson’s report, titled “The Financial Crisis of 2015: An Avoidable History,” isn’t so sanguine. The 24-page study describes how banks, unwilling to accept the lower returns on equity, or ROEs, that result from higher capital requirements, may fuel a new bubble by chasing high returns in commodities or emerging markets. Regulators, by focusing their restraints on banks, may drive risk-taking into unregulated funds that also pose danger to the system.
The report urges bank executives and shareholders to accept that returns of the past are unsustainable and that they need to do a better job of monitoring risks, especially in areas that produce unusually high profits.
“Banks need to be less leveraged,” said Wilkinson, 38, who has an engineering degree from the University of Cambridge’s Trinity College and has worked since 1993 at Oliver Wyman, where he focuses on risk management. “The true test for me of whether they’ve deleveraged is if the industrywide ROEs come down. If they don’t, I’m very suspicious that there are hidden risks in the system.”