OpRisk, the New Six Sigma; Debating the Leverage Ratio; Is Money Laundering a Real Crime?

Is Money Laundering an Actual Crime? Columnist Jon Matonis got a good debate going this week by suggesting money laundering was an artificial crime. "Think of it as driving without a lightbulb above the license plate being a felony because thieves might drive away in the night," he wrote. "All must participate in illuminating the way to be tracked. More than anything, this is a clear sign of regulatory desperation." Some readers agreed with this assessment. "The point is, drug trafficking is already illegal. Racketeering is already illegal. Making it illegal to misreport income serves no other purpose than to aid law enforcement of other crimes," one commenter wrote on Reddit. But another Reddit commenter classified the post as an "exercise in devil's advocacy that plays on our desire for privacy" and a BankThink commenter argued, "if you indiscriminately equate 'governments' with 'oppressive regimes,' I'm pretty sure you will find that all laws are onerous – except, perhaps, for the laws that prevent someone from stealing 'your' money as you walk down the street."

Leverage Ratios vs. Risk Weights: American Bankers Association Chief Economist James Chessen started a lively debate when he suggested the leverage ratio was an overly simplistic capital measure. Per Chessen's post, which includes an analysis of FDIC data, "the risk-based ratio, for all its shortcomings, did a much better job distinguishing banks that would go on to fail from those that survived."  Esther George, president of the Federal Reserve Bank of Kansas City, defended the leverage ratio, calling it "an understandable measure of a bank's loss-absorption capacity that can be compared across firms." She also pointed out that focusing on the leverage ratio did not preclude risk-based capital measures. "Neither can be effective in isolation," a commenter agreed. "And both need to be accompanied by more emphasis on hands-on supervision of banks and greater market discipline."

Editor Grab Bag: Jeff Horowitz, American Banker's risk management editor, took on "flavor of the moment" operational risk this week.  "The treatment of ops risk management as a budding scientific discipline populated by experts could end up shielding its practitioners from outside, common-sense scrutiny," he argues. One commenter countered: "Quantifying any risk is essential. One cannot manage what one cannot measure." Meanwhile, PaymentsSource Editor in Chief Daniel Wolfe argued that the $45 million ATM bank heist adds to the many reasons banks approach prepaid products with caution. "The product still hasn't overcome the sting it felt when the Kardashian Kard dared to charge a year's worth of fees up front, making clear just how much these products cost the consumer," he writes.  

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