Turning financial and corporate risk management into a commons
Exposing complex financial instruments to the vetting of thousands of experts could help restore trust in banks, kick-start venture capital, unfreeze the paralysis of lending markets and lay the foundation for a new and stronger financial service industry.
Excerpted from Don Tapscott:
“Wall Street reform requires restructuring of the industry. Wall Street companies need to overcome their obsession with proprietary ownership of their intellectual property and learn to share certain information. For example, the banks currently have upwards of a trillion dollars of “toxic assets” on their balance sheets. Since no one knows the true value, the assets have created so-called “zombie banks” that won’t lend money to entrepreneurs. Because 80 percent of new jobs come from companies 5-years-old or less, the inability of startups to borrow money is a huge impediment to job creation.
How can the banks value these assets, dispose of them and get back to normal? They should be sharing the information — essentially placing risk management in a commons. Think risk management Linux style, which is completely feasible and affordable in a digitized world. For instance, the Open Models Valuation Company is using the web to create a global community of experts dedicated to establishing credible valuation and risk assessments for credit securities and contracts such as CDOs and other derivatives.
Craig Heimark, an industry veteran and one of the founders of Open Models, likens it to the scientific peer-review process: “In the scientific world when people publish something, they don’t just publish their results, but also the steps in the process, their methods and assumptions so that they can be vetted by others.”
Exposing complex financial instruments to the vetting of thousands of experts could help restore trust in banks, kick-start venture capital, unfreeze the paralysis of lending markets and lay the foundation for a new and stronger financial service industry.
The paramount role of banks is not to create shareholder value and enrich their executives. They exist to provide a safe place for people and organizations to store their money and get credit. They exist to execute myriad transactions, make capital markets and are central to our economy. We charter them with a license to operate so that they can perform these functions, but the recent repeated crises show they have violated their pact with society.”
