Four Ways to Fix Banks

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June 2012 reprinT r1206G

Four Ways To Fix Banks

A Wall Street veteran suggests how to cut through the industry’s complexity. by Sallie Krawcheck

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Four Ways To Fix Banks

IllustratIon: ryan Inzana

A Wall Street veteran suggests how to cut through the industry’s complexity. by Sallie Krawcheck

It IS temptIng to vIeW the financial downturn as a closed chapter whose primary causes have been resolved—perhaps not perfectly, but fairly comprehensively—by the Dodd-Frank Act’s reregulation of the financial services industry. But big banks continue to have a governance problem, which poses significant risks not just to them but potentially to the entire economy during the next downturn.

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June 2012 Harvard Business review 3

Four WAyS to FIx bAnkS

It is well-known that many banks were nearly wiped out in 2008 by a global financial crisis they helped cause. Since then most of them have been nursed back to health, with lots of help from taxpayers and central bankers. Yet despite the reregulation, they remain complex, opaque institutions in the business of taking enormous risks. Figuring out how to oversee them successfully—to keep their risks in check while allowing them to be profitable and economically productive—is a continuing unmet challenge for boards, regulators, and society as a whole. Upgrading bank boards is one way to take on the challenge. Since the crisis, boards at major banks have revamped their membership and substantially increased their time commitments. This movement could be taken even further: Robert C. Pozen has suggested (“The Case for Professional Boards,” HBR December 2010) that board membership at a big bank should be a full-time job. But even smart, experienced, full-time board members would struggle with the staggering complexity of the biggest banks....