Majarkeun

Making TBTF Policy Work Prompt Corrective Action

In my earlier post on TBTF policy, I started to discuss why "prompt corrective action" (PCA) is the key to making TBTF policy work, and I want to expand on that here. Done right, I really do think PCA could be the glue that holds TBTF policy together. The resolution authority is clearly the most important aspect of TBTF policy, since "too big to fail" just means "too systematically important to put into Chapter 11." Give us a resolution authority that can wind down systematically important nonbank financial firms without causing a financial crisis, and suddenly no firm would be TBTF anymore — the TBTF problem would instantly vanish. The trick is obviously to design such a resolution authority. Easier said than done. One of the biggest problems is that there are no trial runs — we wont know whether the resolution authority we end up with actually works (i.e., allows regulators to wind down systematically important financial firms without causing a financial crisis) until we use it during a crisis, which policymakers will be loath to do the first time because itll still be untested. But thats where PCA should come in. PCA can act as "foam on the runway" for the resolution authority (to borrow a phrase from Geithner). In the earlier post, I argued that one of the PCA triggers should be contingent on the tenor of a financial institutions overall liabilities—that is, the Fed should be required to take prompt corrective action once a large financial institution allows the tenor of, say, 20% of its overall liabilities, or 50% of its daily funding requirements, to drop below one week (again, I just pulled those numbers out of the air). In other words, the new PCA regime should be focused more on a large firms liquidity ratios than on its capital ratios. What sort of "corrective action" should a financial firm that runs afoul of this or other similar PCA triggers be forced to take? Broadly, Id say that the PCA regime needs to force a firm to secure a certain amount of medium/long-term financing for its capital markets activities (e.g., $X >30 days, $Y >100 days; "medium-term" and "long-term" are relative terms here, since were most talking about capital markets positions). The key is to make sure that a systematically important firms survival or failure is not contingent on its ability to obtain ultra short-term financing. As a firm relies more and more on overnight repos and rehypothecated collateral and prime brokerage accounts to fund its positions, its balance sheet gets exponentially more chaotic and confusing — securities are being pledged overnight all over the place, the firm is rehypothecating all the collateral it can (and some that it cant), etc., etc. If the firm ends up failing, this makes a smooth resolution 100 times harder, in part because of the inevitable delay required to figure out where everything is. Lehman was still transferring assets in between its various European and North American branches at a furious pace right up until its bankruptcy filing. As a result, a lot of hedge funds and other investors were very surprised to discover that their assets were not in segregated accounts in Lehmans North American unit, but in fact had been transferred to Lehman Brothers International (Europe) and then rehypothecated. This was a huge source of uncertainty in the days following Lehmans bankruptcy filing. It was also the main reason why hedge funds all started pulling their prime brokerage accounts from Morgan Stanley and Goldman, which both investment banks had relied on to some extent for short-term financing (the so-called "free credits"). The new PCA regime should aim to prevent this kind of thing from happening by making a large firms survival or failure contingent on its ability to obtain medium/long-term financing for its capital markets positions, or by giving the Fed the authority to restrict transactions between affiliates once a large firm passes a certain PCA trigger. If we can use PCA to ensure that a large firm doesnt rely more and more on ultra short-term financing as it edges closer to failure, then a successful resolution under a new resolution authority is very realistic. The point is that PCA needs to be a way to force both the financial institution and the regulators to start getting their ducks in a row in preparation for a resolution. If PCA can ensure the conditions necessary for a smooth (i.e., non-catastrophic) resolution of a large financial institution, then well have a legitimately "successful" resolution authority for large nonbank financial institutions, and the problem of TBTF will be no more. Of course, Ive been through more than enough rounds of financial regulatory reform to know that its highly unlikely itll actually happen that way. But getting a framework in place that could get us to that point isnt out of the question, so long as the fairweather populists can be kept in check.

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LSG Webinar When Learning is Working The 70 20 10 model in Action

Can I say how excited I am to be at this webinar with Charles Jennings? As a big fan of Jay Cross idea about workscaping and as someone whos put this idea into action, this is definitely a topic very close to my heart. I dont know what Charles agenda is, but if its about the way work and learning are synonymous, Im sure hell strike a chord with me. These are my liveblogged notes from the webinar, totally unplugged -- so I promise to keep it as honest and real as I possibly can.

So what does Charles want to talk about? What are the key challenges that organisations face today? Change is increasing everyday and we need to keep emowering our workforce to keep up with change and keep building their capabilities. We dont do training right - we, in fact do it very inefficiently. Charles is going to present a model on experiential learning that really works and hopefully hell share some empirical evidence for this as well. Nom, nom, very exciting.

Charles asks us to think about some of our most significant learning experiences and to think of where they occured. For me most of my learning happened at work. Charles has picked up my favourite example to explain experiential learning. I use the example of how we learn to ride a bike - we got bare minimum instruction, but we learnt from experience, failure and reflection. We didnt real a manual or go through detailed training -- we just did it and learned!

The Trouble with current Formal Learning Approaches

Much of formal learning is content rich and interaction-poor. We learn to know but we hardly learn to do. I called this the phenomenon of growing the knowing flab vs building the doing muscle. This is the big problem with formal learning programs in organisations these days -- if theres a best practice, content rich training works. OTOH for most knowledge workers, its an interaction rich approach thats crucial, because it prepares us to face complicated and complex problem domains and thereby deal with novel and emergent practice.

Most away from work training and learning leads to the phenomenon of the forgetting curve, because instruction out of context leaves nothing for workplace performers to remember and apply what theyve been "told".

Most of the participants like to get involved and try things out. They like to have dialogue and discussion. They like presentations which are organised according the logic of how they work and learn. They like to experience how things work. This is amble evidence that proves that people like to learn through interaction, working with others and real experience.

Real Adult Learning

Humans like other animals learn through experience, practice, conversation and reflection. Real adult learning is about acquiring new ideas from experience and retaining them as memories. Instead of structuring learning around content, we need to structure them around creating learning experiences.

Charles is now introducing the 70:20:10 model from the Princeton University which says that we learn 10% from training, 20% through observation and 70% through real experience. This is a model, not a recipe, but has significant evidence about this.

70:20:10 is a framework for thinking outside classes, courses and curricula. Most organisations spend their money on the formal training curriculum, where the bulk of the budget should ideally go to helping people learn from experience. A lot of the evidence comes from the initial assertions by Jay Cross and then from studies by Capital Works , Education Development Center at Massachusetts, US Bureau of Labour Statistics and Institute of Research for Learning. Charles will give us more evidence and studies later.

Incorporating 70-20-10 in Value Based Learning Strategy

First things first, this is only a model and not a silver bullet. The percentages are only indicative. So Charles recommends that we dont get hung up on the numbers and focus on the context because implementations will vary with the problem on hand.

This is quite understandable, given that youre very very unlikely to see behaviour change through classroom sessions. OTOH, this is extremely likely to happen with the constant "interventions" that informal learning creates for us.

Most managers say that they learn through informal chats with colleagues, search engines like google and through trial and error. This is some real research from Good Practice.

Charles mentions that thinking 70-20-10 requires a mindshift and cultural change whereby we can, as learning consultants help our organisations understand and be aware of the opportunities we need to create in the workplace people to pick up and hone the skills they need to grow. This means working with businesses to create sizeable investments in informal learning, getting managers involved and development driven performance management.

Charles also suggests that we include 70-20-10 thinking in the competency framework of various job families. This is something weve tried to implement via the concept of learning paths. Charles suggests through that we go a step forward where we list out recommendations in each area of the 70-20-10 model for each role to seek out their development through experience, observation & feedback and formal learning.

The Role of Managers

Managers are strongly involved in the development of their people. Not just Charles and I, Esther Derby says so too. Managers have the most impact in terms professional development and the mindset of "lets throw them to the trainers", takes away a lot of responsibility from leaders. The corporate leadership council has research that says that people who work with managers that are committed to developing them, outperform those with less involved managers. (I think thats what I saw, though I could be a bit wrong)

Working with team member through learning logs, coaching regular feedback, and goal setting are crucial skills for managers.

L&Ds Readiness for 70-20-10
The focus of L&D has to change:

• Moving from maintaining catalogues of courses, etc to managing workscapes.
• Moving from designing and developing materials to supporting learning experiences in the workplace.
• Moving from a course centric approach to a performance centric role.
• Moving from predominantly classroom and elearning driven approaches to a multi-channel, multi-modality approach.
• Finally we need to move from a learning focussed approach to a performance and productivity focus.
  

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Great stuff from Charles, I really liked the stuff hes mentioned and this resonates with my own approach in L&D. Thank you!

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