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Global Investor/ISF 25th anniversary: John Nugee, SSGA – key events of the last 25 years
03 September 2011
John Nugee, head of State Street Global Advisors official institutions group, explains what made the Asian Financial Crisis so important, and why ATMs are a lesson for the financial sector
Asian Financial Crisis
Bank of England
Was Paul Volcker right when he said the ATM was the
banking sector's only contribution to society in the past 25
"at least it was useful"?
Clearly he said that for effect - but I think he is
right in the sense that the banking sector needs to remember
it's a service industry, and one of the things to emerge out of
the crisis is that it had lost sight of this. Things were
done in financial engineering on the basis of, 'if it can be
done, it should be done'. But sometimes it's important to
ask, 'does anyone actually benefit from this?'
And in this context, if you look around at what the banking
industry has done in recent years the ATM is something that has
really revolutionised the man in the street's life from his
That doesn't mean, however, it is the only useful innovation
from the banking sector.
The man in the street doesn't understand that mortgages are
easier to obtain - or at least were easier to obtain in the
early 2000s, than previously. One remembers mortgage rationing,
one remembers the mortgage queue. Even though the banking
system isn't still working properly mortgages are more
available than they were 25 years ago because of the greater
innovation in the financial sector.
So to say nothing else has been of any use is clearly an
exaggeration, however, the statement hones in on the idea
that the banking sector is a service sector, and it must
Has the recent crisis ended the discussion over whether
there should be a separation of monetary and supervisory
It looks as though the experiment of separating the FSA
didn't work. But you have to be careful when you say
the FSA didn't work, because what you are actually saying is,
'had the Bank of England been in charge throughout then the UK
system would not have got into this crisis'.
I think that is a strong statement that's not possible to make.
You can have good regulation done in separate bodies and bad
regulation done in combined bodies.
Is the growth of leverage the most important financial
development of the last 25 years?
It's an answer that will be easier to give in five years time
because leverage throughout the industry is being rapidly
reduced. Recapitalising the banking sector is simply another
way of saying it's reducing its leverage. But it's clear
that leverage in all forms - by banks, by investors, and
financial instruments - certainly enabled the financial sector
to grow more rapidly than the economy that it served.
Should the regulators have intervened earlier?
I don't think you want the regulator to say, 'you are growing
too fast, don't'. I think it is entitled to ask, 'is there an
end user demand for what you're doing, is it well
I do wonder if historians in 50 or 100 years time will look
back on the period form 1998 to 2008 and ask, 'did nobody
notice the real economy was growing at 5% nominal, and the
financial sector which supported it was growing at 15%
nominal?' It's as if restaurants were growing at three times
the rate of people eating at them.