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Nassim Taleb heads international banking’s first Grey/Black Swan Committee

Emir Phillips

The Quarterly Review of Economics and Finance, 2019, vol. 72, issue C, 117-122

Abstract: This Article queries what if a Systemically Important Financial Institution (SIFI) placed Professor Nassim Taleb on its Board and empowered him to set up its long-term risk committee so its corporate governance would then be more concerned with avoiding disaster than with short-term profits, especially if of a speculative nature whose true risk was underestimated due to a faulty reality paradigm (Gaussian). More pertinent than asking if the bank is making a profit, the long-term risk committee should be asking how antifragile the bank is if a certain event occurs. In enabling banking corporate governance to better spot Grey/Black Swans, this Article asks why bank directors took such a false comfort from their regulatory capital ratios. In other words, regulatory compliance too often acts as a substitute to effective risk-management. Rather than taking the position of effectuating evermore compliance in lieu of effective long-term large bank risk management, corporate governance for banks should entail avoiding Grey/Black Swans by incessantly assessing the Pareto assumptive givens of the banking world. And banking corporate governance should also include learning when to utilize a bit of lateral thinking, imagination and prudent risk-taking instead of leaning so heavily on models, particularly Gaussian-based models.

Keywords: Nassim Taleb; Black swans; Dragon Kings; Gaussian; Pareto; Bayes theorem; Risk management; International banking; Corporate governance; Complexity theory; Emergent phenomena (search for similar items in EconPapers)
Date: 2019
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