NYNP blog post 3-17-10

A lesson for trainers from financial regulation

Last week was Public Affairs Week at Baruch College, and the Wednesday topic was New Directions in Financial Oversight, with Michael Alix and Jonathan Chanis, PhD.

Alix is a senior vice president at the New York Federal Reserve Bank, working in the Bank Supervision Group (although he noted that he was expressing his personal opinions); previously he served as the chief risk officer at Bear Stearns. Chanis is Managing Member of New Tide Asset Management, LLC, and has worked in finance, and emerging markets and commodities trading for over 20 years; he is currently a member of the Council on Foreign Relations, a member of the Board of The Energy Forum, and a trustee of the National Committee on American Foreign Policy.

Both speakers said that they are in favor of well regulated financial markets, but they had different perspectives about what that means.

Chanis explained the difference between the "financial economy," which deals with managing money and credit, and the "real economy," which deals with actual goods and services. The financial economy is supposed to be an adjunct to the real economy. He explained that the economic crisis was triggered by problems in the financial economy which then impacted the real economy, and he suggested that we need to figure out the optimal size of the financial economy in order to prevent a recurrence of the crisis, because the financial economy had recently grown so much that its impact on the real economy was enormous. From there, we need to regulate the financial economy to prevent companies and people from making a profit by taking advantage of the government; for example, right now if a bank takes a risk and loses, the government bails them out and makes the taxpayers pay for it, but if a bank takes a risk and wins, they get to keep all the profit.

Alix appeared to be in favor of much looser regulations. He said that financial market reform has the goal of supervising the collective systemic risk from all institutions, rather than supervising individual institutions. He said that regulation requires redesigning "incentives, infrastructure, and insolvency regimes," and making information more transparent and accessible so that we can have insight.

Keeping it simple
In a breakout session afterwards, Professor Sermier pointed out that the message of the evening could be boiled down to the idea that it's not reasonable to expect human beings to operate against their own best interests. For example, at the individual level, if given a choice between making a lot of money quickly or not, most people will choose the money for themselves and their families, even if it's not the "right" thing to do because of a risk of contributing to a financial crisis. That's why we need the government to protect us from ourselves by establishing sensible regulations.

Takeaway for trainers
The idea of regulating the financial markets is about making people do the right thing even when it's easier or more tempting to do the wrong thing or to do nothing. Just telling people about the right thing will not change their behavior, so we need to do more.

In the same vein, just telling people about a desired workplace behavior will not make much of a difference. That's why training needs to go further - we need to motivate participants to improve or change, persuade participants about the value of the new skills, help participants practice new skills, let participants plan how they will use their new skills when they are back at their jobs, involve managers in supporting the change, and essentially help participants do the right thing on the job even when it's easier to or more familiar to do the wrong thing or nothing.