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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 years because,
"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 perspective.
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
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
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 funded?’
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.