London Business School comment on the financial crisis
Published in Finance on 07 Jun 2012
London Business School has mastered a great reputation for a world-class finance faculty, bringing together cutting edge research and real-world business insights delivered in a highly respected and diverse learning environment.
London Business School have given an exclusive interview around their views on the current financial crisis and what lessons can be learned, is this enough to avoid another crisis and what this means for students entering finance degrees today. Granting access to views from the School’s finance faculty, including comment from Dick Brealey, Francesca Cornelli, Julian Franks and Stephen Schaefer, the full interview can be found on the Business Strategy Review website. Below, Bdaily looks at some of the key points raised.
Professor Dick Brealey, Emeco-author of the world’s most popular finance textbook Principles of Corporate Finance believes that the current financial crisis was not caused by today’s complicated financial instruments. Dick believes that we need to learn a lot more about bank regulation and why markets suddenly dried up but also why the liquidity we assumed was adequate wasn’t. Overall, Dick believes that we don’t need to start from scratch, simply learning at past mistakes.
On the future of finance, Dick said “I think we will see rather more interest in some of the behavioural issues — the strange and logically inexplicable behaviours of people in the world of finance, the things that rational economists don’t like to think about very much… We need to teach more about financial institutions and the way they’re organised and the way they operate, rather than simply how to value the particular financial instruments they deal with.”
Professor Julian Franks knows that the world will drop into another financial crisis in the future. His concerns lie around whether we have the financial architecture in place to minimise the costs. Upon answering a question around why we keep falling to crisis every 15 to 20 years Franks commented that “one answer is that people who were there at the time have retired and new people have come along and there is no institutional memory.” His main point, agreeing with Brealey, is that structural changes need to be made, banks can’t rely on memory to conquer future crisis’, plans need to be in place to minimise impact.
The Deputy Dean of the finance faculty, Stephen Schaefer, doesn’t want the world’s economic troubles and bad press to put future students off studying finance, in fact he believes that business schools like London Business School are more sophisticated than ever. “Today, there are many more people in industry who have had some form of formal training in finance; they have had exposure to the way things are done in serious research” he says; “There can now be a much more constructive debate about what is happening in the markets”. Schaefer believes that this debate between theory and practice has been reflected in the teaching at London Business School, more so nowadays there is more of a balance between matching theory and real-world concepts.
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