So read the headline in the November 5 Wall Street Journal. The House Financial Services Committee is trying to divine a way to prevent future failures of large financial institutions while not hobbling them to the point of being ineffective.
I think we would all agree that finding that balance point is a daunting challenge. Why? Intelligent risk-taking is conditional. Whether it is a large financial institution, a small business or an individual, the appropriate risk posture at any given time is always changing. It is influenced by numerous factors including availability of capital and talent. The risk characteristics of existing organizational or personal commitments are also a factor. Market conditions and the competitive environment should and do influence risk posture. This is just the beginning of the factors that shape an appropriate risk posture.
With in being so changeable, legislating an appropriate risk threshold is exceedingly difficult. There is no way that all permutations of conditions can be addressed or even anticipated. And we haven’t even gotten to the innate discomfort with risk that may be present in some of the legislators and could profoundly influence their approach to regulating risk.
Risk is powerful and can be frightening. But we have to find a way to live with it and utilize it or we all will suffer by its suppression.
