Bankers should put more skin in the game

He’s against breaking up big banks. He doesn’t favor a return to Glass-Steagall’s separation of commercial and investment banking. And he’d like to see most of the Dodd-Frank Act dismantled. William Cohan made it clear at the second annual Wealth & Asset Management Conference at Olin that he’s against tight regulation of the finance industry where he spent most of his career.

Cohan was a headline speaker at the conference sponsored by the Wells Fargo Advisors Center for Finance and Accounting Research held Aug. 22-23. Cohan’s current career involves writing books about how big finance works behind the headlines. Cohan discussed his latest work, Why Wall Street Matters, with Rich Ryffel, senior lecturer in finance.

So, how would Cohan propose preventing the next financial crisis if regulation won’t help? David Nicklaus at The St. Louis Post-Dispatch covered their conversation in his Aug. 25 column:

Cohan proposes that the top 500 or so executives at each big bank be required to pledge their entire net worth as backing for the firm’s liabilities. They could still earn bonuses and stock options when things were going well, but another bad bet like subprime mortgages could cost them everything.

“It’s in the DNA of Wall Street to have your own skin in the game,” Cohan says. “You’re not going to take Goldman Sachs or Wells Fargo private, but my idea would recreate some of the old partnership structure.”