The concept of "too big to fail" continues to challenge the financial services industry and those who are seeking to change the ways in which the industry is regulated and structured.As executive editor Penny Crosman points out in her recent feature, one executive's "too big" is another's "diversification." Yet even as the debate continues over the degree of systemic risk presented by very large, complex global organizations, a new corporate crisis has emerged to illustrate the difficulty of resolving this issue.
Only this time it doesn't involve a bank - it's the British energy giant BP, the company ultimately responsible for what appears to be the worst environmental catastrophe ever to occur in the United States. For the moment, BP has replaced Goldman Sachs as Public (Company) Enemy No. One in the U.S. In fact the anger toward the energy giant has become so intense that, at press time, British officials - including Prime Minister David Cameron, Chancellor of the Exchequer George Osborne and London mayor Boris Johnson - were carefully defending BP, in fear that the fallout from the Gulf disaster could bankrupt the company. In mid-June BP's stock had fallen more than 40 percent since the catastrophe occurred in April, causing very real concerns about the implications for the British economy. Johnson told a BBC radio interviewer, "When you consider the huge exposure of British pension funds to BP, it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves."
Why, it's "too big to fail" all over again. A corporation is so big and so integrated into all aspects of the nation's economy and social network that any threat to that company's survival puts the whole country at risk. It's just as bad and problematic when it involves an energy company as it is when it involves a financial institution.
It didn't take long for pundits and analysts to start identifying other similarities between the Deepwater Horizon environmental catastrophe and the fallout from the global financial crisis. There has been a depressing sense of déjà vu as one considers at least the superficial parallels between the two events: the underestimation of risks, a lack of corporate leadership, and inadequate investment in and use of technology.
The parallels only go so far, but at the very least, they do show that human nature - and its propensity toward greed, optimism and hubris - is as much of a business risk as a hurricane or earthquake. Why can't we understand that and learn from it?
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio