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And here we see the behavioural crux: we tell ourselves that what matters in risk management are the formal boundaries we draw; the official channels; the technical superstructure of the relationship; the architecture of the parties’ rights and obligations versus each other. But this isn’t true. In practice the relationship is governed by soft, morphing, invisible, ''informal'' boundaries, good and bad. Interpersonal relationships. Insecurities. Understandings. ''Mis''understandings. Past practices. Fear of screwing up. Precedents. Arse-covering. Expectations. Self-serving narratives. Trust. The [[commercial imperative]].<ref>This isn’t the place for it, but note: these fundamental qualities of commercial life are utterly [[Legible|illegible]] to [[neural networks]], [[Policy|policies]] and [[algorithm]]s.</ref> These things don’t show up in org charts or on [[opco]] [[deck]]s. You can’t measure them. To try is to get the wrong end of the stick. | And here we see the behavioural crux: we tell ourselves that what matters in risk management are the formal boundaries we draw; the official channels; the technical superstructure of the relationship; the architecture of the parties’ rights and obligations versus each other. But this isn’t true. In practice the relationship is governed by soft, morphing, invisible, ''informal'' boundaries, good and bad. Interpersonal relationships. Insecurities. Understandings. ''Mis''understandings. Past practices. Fear of screwing up. Precedents. Arse-covering. Expectations. Self-serving narratives. Trust. The [[commercial imperative]].<ref>This isn’t the place for it, but note: these fundamental qualities of commercial life are utterly [[Legible|illegible]] to [[neural networks]], [[Policy|policies]] and [[algorithm]]s.</ref> These things don’t show up in org charts or on [[opco]] [[deck]]s. You can’t measure them. To try is to get the wrong end of the stick. | ||
====Newsflash: bank executives make post facto rationalisations ==== | ====Newsflash: bank executives make post facto rationalisations ==== | ||
Much was made of the unmonitored gap in responsibility between CS’s co-heads of prime services.<ref>“Co-heads is ''no'' heads”.</ref> The guy in America was a stocks specialist. He wasn’t big on swaps. He thought he was covering ''physical'' prime brokerage only. The guy in London was an old-school European: he thought he was covering ''all'' of prime services, physical and synthetic, ''but only for EMEA''. | Much was made of the unmonitored gap in responsibility between CS’s [[Co-head|co-heads of prime services]].<ref>“Co-heads is ''no'' heads”.</ref> The guy in America was a stocks specialist. He wasn’t big on swaps. He thought he was covering ''physical'' prime brokerage only. The guy in London was an old-school European: he thought he was covering ''all'' of prime services, physical and synthetic, ''but only for EMEA''. | ||
No-one, ergo, had their eye on ''synthetic'' prime brokerage ''in America'', being ''just the bit that happened to blow up''. Thus the Special Committee identified a ''structural'' shortcoming in Credit Suisse’s management organisation: a [[formal]] black spot on the radar. | No-one, ergo, had their eye on ''synthetic'' prime brokerage ''in America'', being ''just the bit that happened to blow up''. Thus the Special Committee identified a ''structural'' shortcoming in Credit Suisse’s management organisation: a [[formal]] black spot on the radar. | ||
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=== How organisations work=== | === How organisations work=== | ||
The episode is a masterclass in how organisations work; how people in positions in responsibility are propelled by internally-constructed [[second-order derivative]]s of the risks they are meant to be monitoring: what matters is not ''what happens'' nor ''holding adult conversations with customers, even where that requires delivering unpalatable truths'' but that ''I should not be held responsible for what happens'', a state of affairs one can vouchsafe by ensuring one follows internal models, policies and diktats regardless of their absurdity or fitness for purpose. There is a tension, between [[Sales]] on the one hand, whose north star is ''do not upset the client'', and senior management, whose is ''make sure all the RAG indicators are green''. | The episode is a masterclass in how organisations work; how people in positions in responsibility are propelled by internally-constructed [[second-order derivative]]s of the risks they are meant to be monitoring: what matters is not ''what happens'' nor ''holding adult conversations with customers, even where that requires delivering unpalatable truths'' but that ''I should not be held responsible for what happens'', a state of affairs one can vouchsafe by ensuring one follows internal models, policies and diktats regardless of their absurdity or fitness for purpose. There is a tension, between [[Sales]] on the one hand, whose north star is ''do not upset the client'', and senior management, whose is ''make sure all the [[RAG indicator|RAG indicators]] are green''. | ||
The job of reconciling this fundamental contradiction is left to those at the coal-face, who are obliged to come up with solutions that squeeze the balloon. | The job of reconciling this fundamental contradiction is left to those at the coal-face, who are obliged to come up with solutions that squeeze the balloon. | ||