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

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  • Phillips, Emir

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.

Suggested Citation

  • Phillips, Emir, 2019. "Nassim Taleb heads international banking’s first Grey/Black Swan Committee," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 117-122.
  • Handle: RePEc:eee:quaeco:v:72:y:2019:i:c:p:117-122
    DOI: 10.1016/j.qref.2018.11.005
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    References listed on IDEAS

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    1. Kerem Uğurlu & Tomasz Brzeczek, 2023. "Distorted probability operator for dynamic portfolio optimization in times of socio-economic crisis," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 31(4), pages 1043-1060, December.

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