Risk in Banking: A Post-Crisis Perspective analyses the causes of the crisis 2007–2008 and presents a new, fresh perspective on the risks involved in banking, especially operational risk.
A Hispanic waiter living off tips gets a 1.2 million dollar mortgage. Soon afterwards, the worst global financial crisis in 80 years hits banks, which collapse like dominoes, in many countries; many currencies, including the Polish zloty, weaken dramatically. How is it possible that the world’s best-paid minds have created such a pathological financial system?
Thousands of studies have been devoted to this question. However, most of them neglect some essential factors, political and human. For one thing, the policies of presidents Bill Clinton and George W. Bush aimed at creating equal opportunities for the least affluent social groups all too often boiled down to giving away loans. For another, the executive remuneration and incentive systems at the largest American banks encouraged undertaking risky and speculative transactions.
Leszek Czarnecki’s book is different in that it presents the actual mechanics of the crisis in a manner that is interesting and understandable even to readers outside the financial industry and suggests what should be done to prevent such crises in the future. The author also explains why the latest changes to financial regulations proposed by the Basel Committee will not protect us against the next crisis.
This book is a must-read, and for a few reasons. Primarily because it is authored by a businessman and banker who, firstly, has achieved success, secondly, ponders the factors behind his success, thirdly, analyses the factors behind the successes and failures of other market players, and fourthly, perhaps most importantly, is willing to share his experiences and conclusions.
What is its greatest value is a very practical approach to banking risk analysis, from the point of view of shareholders, bank executives, and regulators. They all have a shared interest, in a sense, which is to ensure that banks remain financially stable, but they currently use different approaches and different metrics.
The proposed method for analysing banking risk, based on the concept of entropy, should become part of banking regulators’ tool kits all over the world, and the book should become required reading for all regulators and central bankers.
What is no less important is that the book is written in simple and vivid language and explains the basic concepts relating to risk in banking so it will be interesting and comprehensible not only to banking professionals but also to laymen, such as journalists, commentators, and all others interested in the subject-matter.
The author rightly concludes that renewed ‘asset pumping’ cannot be prevented by the more stringent requirements and safety regulations currently in place, which prompts him to look for solutions that could genuinely minimize the risk of turbulence similar to the 2008 crisis re-occurring in the future.
The exhaustive description of the factors that play a role in an integrated model of a bank’s financial stability should become a canon for all those who deal with banking professionally.
Risk in Banking is the first attempt by the business community of New Europe to join in the global debate on the causes of the financial crisis. It immediately provides a refreshing perspective from a banking entrepreneur who has avoided succumbing to the etiquette of formalized management and supervisory boards. It remains to be hoped that the debate on the future of banking will evolve along the lines of the commonsensical approach proposed by Leszek Czarnecki. Perhaps then we could avoid another crisis.
Leszek Czarnecki graduated from Wrocław University of Technology and received a Ph.D. from the University of Economics in Wrocław. One of the most creative Polish entrepreneurs, he pioneered modern financial solutions in Poland.
His business career goes back to the 1980s, when he established TAN S.A., a company providing underwater engineering services, but for the past twenty years his business activities have been focused on the financial sector. He built the leasing company EFL from scratch and then created Poland’s largest financial group, Getin Holding, whose member companies include the number two insurance company in Poland, TU Europa, and one of the biggest banks, Getin Noble Bank. Six of the companies he has established are listed on the Warsaw Stock Exchange.
He has earned many awards bestowed by various business and media organizations, Polish as well as foreign. He is the only Pole to have been named a rising star of European business by the Financial Times, whereas the Wall Street Journal has recognized him as one of the best managers in Central Europe.
Leszek Czarnecki is an avid cave and wreck diver.
The above has been compiled on the basis of opinions expressed by the following experts:
Professor Krzysztof Rybiński (Rector of Vistula University), Jacek Socha (Partner and Deputy Chairman, PricewaterhouseCoopers Poland) and Jacek Chwedoruk (Managing Director of Rothschild Central and Eastern Europe).