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

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.