LESSONS IN HISTORY

Those who cannot remember the past are doomed to repeat it.

George Santayana

Most bad moments of experience have clear cues. We just not very good at picking them up. We’re never taught to. Most of them are similarly shaped to earlier events (wonks like me call this ‘event isomorphism’). We don’t learn from similar earlier events.

A case in point: in Australia there have been major financial system inquiries in 1979, 1996, 1997 and 2013. The ensuing legislation focused largely on promoting safety and efficiency in the system. Yet, in 2017, the Federal Government was forced, through political and public pressure, to convene the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The findings do not make for great reading. Rife misconduct. A focus on profit ahead of all else. Weak regulation. Hollow apologies. Drawn out remediation. The depressing litany goes on. Yet, it was not the world’s first financial services sector inquiry to draw similar findings. The GFC was founded on misconduct, mis-selling and greed. Many others litter history.

Most banking challenges do not have a technical trigger. The majority are caused by human greed or human error (the technical term is behavioural operational risk). And we seem neither to learn nor to legislate.

It’s not that some of us haven’t tried to see this enshrined in legislation. Across 2000 and 2001, as part of the Operational Risk Research Forum, I helped advise the Bank of England on building behavioural operational risk clauses into the Basle International Banking Regulations. The section didn’t make it. Other technical advisors (one from the same university as me) claimed they could model everything – including random (stochastic) human behaviour – with ‘long-tail’ probabilities. History had already demonstrated the invalidity of this claim. It’s repeated its lesson since.

Plus ça change, plus c’est la même chose

Jean-Baptiste Alphonse Karr

There are lessons in history. We’ve just got to pay attention to them, pick up the cues and learn. If we don’t, we loop back; not back to where we started, but to pretty much the same state.