Nout Wellink: Wim Duisenberg, financial turmoil, fit and proper, need for
financial education
Speech by Dr Nout Wellink, President of the Netherlands Bank and Chairman of the Basel
Committee on Banking Supervision, at the Opening of Duisenberg School of Finance,
Amsterdam, 15 September 2008.
* * *
Introduction
Allow me to start with a short anecdote regarding Wim Duisenberg. As you know, Wim was
professor in macro-economics at the University of Amsterdam. He obtained his PhD in 1965
on "The economic consequences of disarmament". The evening before the promotion
ceremony his friend Jan Pen called him. After having a general discussion on the topic, he
pointed out that Wim had made a rather severe mistake on page so and so. As Pen had
spotted the mistake, he informed Wim that he would question him during the day to come.
Pen persisted and indeed, the next day, during the ceremony he pointed out the mistake to
Wim and asked him what he was going to do about it. Wim was summoned to answer to this
accusation - and calmly replied: "Thank you, we will take this into account in the next print".
Wim Duisenberg
Wim was, as this story points out, a man of science AND of practicality. He cherished the
high arts of financial theory as an IMF advisor, but simultaneously relished the speed and
actions that the financial system demanded, as Minister of Finance and as Central Bank
President.
It was in his position as President of De Nederlandsche Bank that Wim made clear
statements on his ambition to combine theoretical knowledge with practical expertise. He
adamantly supported the transfer of the Bank's research department out of the dark and
dusky vaults, shaping it into a more vibrant and policy oriented department. Wim wanted to
have the best minds within the Bank at the disposition of those that had to take stands on
practical policy decisions. The forged alliance could tackle any issue at hand.
This was few decades ago, but Wim was ahead of his time and quickly came to realize that
having the best minds does not offer a singe packet solution to financial institutions, including
to De Nederlandsche Bank itself. Keeping your best people rooted in financial practice and
education - one not without the other - was his core policy.
Current events & black swans
Wim was not on his own in wanting to have the best minds for his organisation. Nowadays,
many companies keep stressing that they themselves have the "best and brightest", taken
from high class universities all over the world. Yet, the turmoil in financial markets spurs me
to occasionally ask a board member of any of these institutions if they do not feel too big to
be managed.
The general reply is that simply because the "best and brightest" are part of the company,
there is no further need to enhance the management structure, or even look into additional
safeguards. It is these companies that tend to ignore that knowledge needs to be applied
sensibly. If anything, it is exactly the current turmoil which stresses not to single-handedly
focus on those among us that excel in their financial, theoretical skills, if this implies that we
fail to open our eyes to external developments. Developments such as risk management,
corporate governance and social responsibility, all of which shape the way the financial
system works on a day to day basis.
"Our blindness with respect to randomness", as skilfully narrated by Taleb in his Black Swan,
clearly underlines this point. As all of us tend to have limited to no knowledge at all of
unexpected events, the proposition "we know" is an illusion. Science of risk management, for
instance, adds knowledge, but does not uncover the full veil of the world and its events,
which leaves us with Knightian uncertainty. As such, the value of experts can also be
questioned, if this implies that experts do not take empirical evidence into account, but base
themselves merely on their own, by nature limited, expertise. What a globalized world
requires is continuous education, discussion and peer to peer stimulation to keep up with the
pace of exactly these unexpected events.
Fit and proper
This emphasis on up-to-date financial knowledge is also reflected in our own focus on fit and
proper requirements of financial institutions in the Netherlands. Starting at the top,
knowledge and expertise at a board level is a prerequisite. The Bank as supervisor has the
task to monitor and uphold these. To ensure the proper discharge of their responsibilities, it
is important that board members have the skills to run the company. They should have
personal qualities such as honesty, diligence, independent-mindedness and fairness, in
order to ensure that the company is run ethically, in compliance with relevant legislation and
in a manner that treats its customers fairly. "Propriety" requires that they are of good repute
and integrity. "Fitness" requires that a person appointed as a director or manager has the
necessary professional qualifications, knowledge and experience to enable sound and
prudent management. In Dutch law regarding pension funds - Pension Fund Governance -
further elaboration has led to extensive overviews from within the pension sector on specific
fitness issues. The ability to manage an organisation is an obvious one, as is having
knowledge of applicable laws and regulations.
Financial education
Having said that, even if at the board level these issues are tackled properly, this is not
sufficient enough. It is throughout the organisation that adequate knowledge and expertise
has to be available; the capacities of a board member on its own cannot be used to sign off
for an organisation as a whole. Financial education provides the means to realize fitness and
propriety on every essential level in financial organisations and having a clear understanding
of risks involved, of the need of integrity, structure and governance.
Conclusion
Concluding, this brings me back to Wim Duisenberg. Wim was, as I mentioned, ahead of his
time. His wish to combine financial theory and practice is reflected even more than ever in
the current times, where uncertain events of differing magnitude force us to reconsider our
own validation methods. The Duisenberg school of finance bares witness to that. Our
partners, as we have seen and heard today, have given the clear commitment to invest in
financial education, in future students and in a manner of education and research that
outstretches the current limitations on financial knowledge.
I cannot imagine anyone more suited than Wim to lend his name to the institution that is
officially opened here today.