A decade after the global financial crisis, a narrow emphasis on structural reform has left a problematic bank culture largely unchanged. Wall Street banks need to rethink their use of financial models. Daniel Beunza discusses this idea in his new book, Taking the Floor: Models, Morals and Management in a Wall Street Trading Room.
Based on extensive research in a Wall Street derivatives trading room, Taking the Floor considers how financial organizations should be redesigned to address the moral shortcomings that culminated in the crisis. Beunza’s talk first considers instances in which financial models are effectively used, tracing the presence of extraordinary returns to the integration of traders across desks, which reduced the risk of blind spots posed by the models. Second, Beunza warns that the use of models in risk management can create perceptions of injustice, leading to moral disengagement. Beunza argues for strengthening informal norms and supervisory relationships in banks, bringing elements of traditional investment banking partnerships back into contemporary Wall Street.
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Daniel Beunza is Reader in Voluntary Sector Management at CASS Business School and Research Associate at the Systemic Risk Centre, LSE.
Michael Power is Professor of Accounting in the Department of Accounting at LSE and Fellow of the British Academy.
The Systemic Risk Centre (@LSE_SRC) was set up to study the risks that may trigger the next financial crisis and to develop tools to help policymakers and financial institutions become better prepared.
Twitter hashtag: #LSEBeunza
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