Deutsche Bank's Josef Ackermann sees the troubles of some banks and financial institutions as more than problems for individual firms' management and shareholders. They spell trouble for the whole sector, he said.
Josef Ackermann addressed the National Press Club in Washington
Speaking Thursday in Washington, he called for higher standards in how banks and financial services firms manage their business risks. He argued that the banking industry cannot afford to be regulated only by market failures.
The Swiss native resorted to a familiar business to make his point.
"If you are a chocolate manufacturer and your competitor goes out of business, maybe you are relieved," Ackermann said. "Not in banking."
Nobody is too big to fail, he said, and banks are "too interconnected" to tolerate the collapse even of business rivals.
"The problem of one bank, in an interconnected world, is a problem for many," he said.
Ackermann spoke at the National Press Club in Washington to promote a set of "best practices" issued Thursday by the Institute of International Finance, which he chairs.
New risk management strategy
A report by the global association of 380 top banks and financial service companies found that responsibility for risk management should explicitly extend to bank chief executives. It urged firms to evaluate their own risk exposure by more than one method, and that incentives for top executives should not encourage undue risk-taking.
The report called for an external, independent review of rating agencies to re-establish market confidence in the system of bond ratings, which has been hit hard by the collapse of many formerly popular bonds that packaged large numbers of high-risk mortgages.
Ackermann announced that the IIF would establish a Market Monitoring Group to spot previously unrecognized vulnerabilities in the global financial system.
Deutsche Bank has not been immune from the financial crisis
A year after the meltdown of the US mortgage market, the world's largest economy is still struggling with the consequences. Just this month, a large consumer bank in California was taken over by US federal regulators.
And in Washington, the White House, Congress and the rate-setting Federal Reserve Board are engineering a rescue of a pair of government-chartered investment companies, nicknamed Fannie Mae and Freddie Mac. The firms are used to raise private money from Wall Street to undergird the US mortgage market.
The Washington action was taken after bond investors showed strong signs of losing confidence in the battered lenders, who hold or guarantee $6 trillion in mortgages, some of which are now seen as dodgy investments.
Taking questions from Washington journalists, Ackermann avoided being pinned down about when he saw the US housing market recovering from its two-year trough after a decade-long boom. He noted that housing markets typically move in slower cycles than investments in more liquid assets, such as stocks and bonds.
Recent real-estate downturns in other regions have stretched for years.
"In Japan, it lasted 15 years," Ackermann said. "In some European countries, it lasted five or six years."
For the broader US economy and the roiled global credit markets, he suggested a rebound "pretty soon."
National Press Club President Sylvia Smith, moderating questions from the audience, demanded a more specific answer, and Ackermann pinned down "three to six months."
"My strong conviction," Ackermann said, "is we are seeing the beginning of the end of the financial crisis."