Dear reader,

The purpose of learning is growth, and our minds, unlike our bodies, can continue growing as we continue to liveMortimer Adler

Ignace CombesA recurrent general theme of Dialogue is the speed of change the financial sector is going through both external- and self-imposed. In an increasingly over-crowded market in Belgium particularly the banking world given among others the search even by foreign banks to access the high savings rate from the Belgians, it is important for an institution to be well prepared for new regulations and be pro-active to adjust its business model for sustainable differentiation. I hope that this fourth issue of Dialogue through academic and market-practitioners’ views and opinions continues to contribute to your awareness and reflection. This fourth edition emphasizes particularly the need for learning going from self-learning to education through learning from experience and cross-sharing, of course not discounting if you allow me the role Business Schools play as bridge between the academic world and the business world.

The first article “The new European Banking Union: Breakthrough or Missed Opportunity” talks about the challenges the implementation will face due to the likely tension given the dual European and national approach. For logical reasons, choice was made to supervise systemic banks at European level and local players nationally. However, as the article underlines, the effectiveness and efficiency of this co-existence will determine to what extent we will see a successful integration of the capital markets or whether we will see a fragmentation between national markets and  the European market.  There is an additional risk that should not be under-estimated, it is the euphoria from the regulators  who often call the new Banking Union  a historic breakthrough. Being convinced  that, with the new Banking Union, future problems will be solved would be a major mistake as the challenge will reside in the implementation and therefore it will be very important for the regulators  not only to avoid unnecessary national red-tape but also to learn from implementation, be open to market comments  and closely monitor market integration. To that point, the “Financial System Risk” article makes an interesting  assessment of the 2007-2008 financial crisis and makes an attempt to evaluate  if a preventive mechanism to forecast future crisis can be developed. The article analyses the causes and characteristics of the previous financial crisis to identify possible measures (liquidity problems, financial bubbles, ...) that could be used to develop a forecasting mechanism. Thorough lessons drawn from the past is very important as the article underlines to evaluate how effective the new regulatory measures would be as well as identifying the risks from ineffective measures taken, not only the unnecessary cost but more importantly the dangerous comfort it may give of being able to identify potential systemic risks. 

Two articles stress the importance of innovation. The first one “New Landscape of the Infrastructure Financing Market” is assessing trends in long term project financing given regulatory changes through the analysis of the PPP database (Public Private Partnerships). Basel III makes lending for long term infrastructure projects very expensive capital wise whereas such lending could be more aligned with the business model of insurance companies. One’s challenge may be the other’s opportunity  or vice versa.  A business shift however from one sector to the other is not necessarily obvious as banks have the client relationship and the credit expertise whereas the insurance companies lack these, coupled  with the question to what extent insurance companies  have sufficient lending capacity. Opportunities may reside in collaboration to leverage each other’s expertise or in acquiring through learning the necessary skills.  

The second “ Beyond Red castle ” talks about innovation in the financial sector with the opening view that innovation in the financial sector starts to take off but is still too much in the domain of asset optimisation and not enough in fundamental innovation  and creative combination changing the business model of an entity. True innovation in financial institutions is too much handicapped by heavy development and approval procedures. The article stresses the importance of innovative learning, not excluding of course cross-learning from sectors where innovation is and has been a successful key to their survival and sustainable differentiation.

Microfinance is also an interesting business from a learning perspective. Microfinance targets less privileged entrepreneurs with small amounts of financing. The article is based on an interview with a financier. While such business on the surface may not seem to fit the strategic target client base of a financial institution, nevertheless in this case it is a strategic business given the fact that such business helps entrepreneurs whoever they are and supporting entrepreneurship is a strategic goal. Microfinance moreover teaches also a lesson in learning. The default rate on micro-loans is not worse, to the contrary than traditional banking loans. Experience shows that  the  business and financial support and assistance the lender provides through volunteers to the low-skilled entrepreneurs  is an important contributing factor to such successful low default rates. In one of the last publications of the Economist, the main article talks about the growing knowledge gap between the more skilled and the less skilled. The former works longer as they have the ability to continue to learn and share. In a world of increased change and growing need to adjust, lower skilled people find it more and more challenging to change and adapt to the new requirements and as a result are pushed out too soon of the working experience.  Microfinance is therefore also an interesting business showing that adequate support and guidance may help to reduce the otherwise widening gap between more- and less-skilled people and as such help innovation and economic growth. 

Learning is of course also resulting from collaboration between business schools and the corporate world as witnessed by students participating in specialised MBA programmes such as the Master In Financial Management. The journal of their London study trip is  interesting to read  as we learn how participants in such programme not only perceive the content itself but also how they live this experience of being together, learn from in-company sessions and from international exposure, and how to start building a relevant network. These side aspects (but not less important)  also contribute to their training, help them to be open to live experiences and as a result see the benefit of continuous learning and the value of being open- and receiving-minded.

I hope this set of articles from academics and market practitioners is once again food for thought and action provoking. We would appreciate receiving feedback and views as well as new angles and perspectives  on the different contributions. Ideas you may have for other topics you would find interesting are of course also welcome.

Have a pleasant reading,

Ignace Combes
Chairman of the Vlerick Centre for Financial Services 

& Rankings

Equis Association of MBAs AACSB Financial Times Economist Intelligence Unit