Credit crunch report: Dr Barbara Casu Lukac - Building Gender Balanced Business

What do you think were the main causes of the present financial crisis?
There are several causes of the present financial crisis and it is difficult to pinpoint a main culprit. The past decade witnessed relative economic and financial stability, with low inflation, low interest rates and cheap credit. While the favourable macroeconomic climate and the availability of credit made it easier for borrowers to go deeper into debt, investors were constantly looking for good rates of return.

Deregulation enabled banks to diversify and offer more complex financial products. At the same time regulation (particularly capital adequacy regulation) gave banks perverse incentives to transfer risk to unregulated entities. The whole system proved to be a flawed one and, as much as people like to blame the “greedy bankers” they are only one part of a complex problem.

How much of it was due to bad management and incentive structures that encouraged too much risk taking?
There is definitely a problem with existing incentives structures and compensation schemes based on volumes (regardless of risks). The bonus culture encouraged some bankers to take on excessive risks. Ever more complex financial products gave bankers the ability to diversify away some of the risk (or the impression of being able to) and this made it more difficult for regulators to assess a bank’s overall exposure. Financial markets also failed to signal a global underpricing of risks and excessive risk taking, as indicated by low volatility and tight spreads up to the summer of 2007.

Should business leaders in the banking sector have shunned being involved in financial products they did not fully understand?
As long as the economy was growing, everyone was winning. People with relatively low incomes could afford mortgages, investors would get good returns on their investments and banks earned high profits for their shareholders. Governments were also earning high tax revenues from the financial sector, so they did not pay enough attention to what was going on in the markets. Even if bankers and businesses fully understood the financial products they were dealing in, it was very difficult for anyone to fully assess their risk.

Is there any reason to believe that women may have managed the investments differently in the derivatives markets had they had more prominent positions in firms such as Bear Sterns and Lehman Bros?
While I would like to believe that would be the case, there is no empirical evidence to support such statement.

Are we in the recovery phase right now or still in crisis?
We might have avoided a full collapse of the banking sector due to government intervention, but the economic crisis is far from over.

Are governments taking the right actions?
Timely government intervention was needed to minimise systemic risk. Markets would have possibly self corrected eventually, but it might have taken a long time and the consequences for the economy would have been serious.

Can governments control what is happening or are they powerless to stop the markets collapsing?
Governments can do a lot to reinstate trust in financial systems, forcing banks to lend (to each other and to borrowers), and generally reduce the panic that seems to have gripped the financial markets. However, governments are not in full control of the economics system.

Is there a danger we are creating a culture of over-regulation and conservatism for the future that will dampen enterprise and ultimately global economic recovery in the long-term?
Some blame the financial crisis on the effects of deregulation and liberalisation. As recent events have shown, financial markets need regulation. However it is not simply the case of more regulation but better regulation. There is definitely such a thing as too much regulation, whose perverse effects might be more damaging than helpful to the economy.

Is there a danger we draw too many lessons from the current crisis in the expectation that history will repeat itself?
There are some lessons to be drawn from the crisis, but it is too early to fully understand its implications. It is necessary to let the dust settle before drawing lessons for the future.

Will gender diversity fall down in the pecking order of priorities for the boards of companies now that coping with an economic slowdown takes precedence? Should it be allowed to?
I really don’t see why it should and I hope it will not. On the contrary, I hope it will afford institutions an opportunity to reassess their choices in favour of a more inclusive workforce.

What will convince CEOs in the present climate that gender diversity and women on the boards should be a top priority?
A lot has been said in the press about the “testosterone fuelled culture” that prevails in the City. On the other hand, there are also rumours that women are not currently being fired at the same rate as men. Might it be because, in the current climate, women are seen as more valuable to the institutions they work for? Other possible reasons include the fact that women don’t earn as much and that, for once, might work to their advantage. However, it is only speculation as it is very early days to assess the full impact of a potential reshuffle of the workforce. Without doubt, young, aggressive and risk-taking male bankers are not getting a good press at the moment.

Does the financial meltdown reinforce the view that women need to be propelled fast up the ranks so there is more gender diversity at the top?
There are still many barriers that prevent the achievement of a proper gender balance at the top. Regardless of the financial meltdown, attitudes towards women working still need to change; there is a need for family friendly and flexible working schedules as well as affordable and reliable childcare. Managers need to develop the ability to tap into the diverse skills that women can offer.

Banking is still a predominantly male industry, particularly at the top. However, the working ethos and the long hours do not make it particularly attractive to women (even though the pay packet used to be good!).

Dr Barbara Casu Lukac joined the Faculty of Finance at Cass in August 2007. Her research interests are in banking and finance and performance measurement. She has published widely in the areas of bank efficiency and productivity change; the implication of the Single European Market for financial services on bank structure and performance; bank privatisation and bank stock performance. She is co-author of the book Introduction to Banking (FT Pearson Education).