The Johns Hopkins SAIS Global Risk Conference Lessons from the Last Crisis for the Crisis We Face Today

Speakers: 

• Johns Cummins, Managing Director of Future Cities at Legal & General Capital
• Erik Jones, Director of European and Eurasian Studies, SAIS Europe

The discussion began with an introduction on Cummins role as a Group Treasurer of the Royal Bank of Scotland (RBS) during the Global Financial Crisis. Cummins arrived at RBS in 2007, after several years of working in the financial sector. During the crises, Cummins stated, most of the banks that went under and those that did not, were overleveraged and undercapitalized. After the fall of Lehman Brothers, the entire system was overwhelmed by mistrust that prolonged the crisis. This fact is important to remember because, as Cummins mentioned, financial crises take a considerable toll at the humanitarian level of societies as well, and it is much more harmful than that of a regular economic downturn or recession.

Jones then asked about the policy response to the crisis. To that, Cummins emphasized the role of nationalism in the crisis response, and how it complicated the solution for larger banks with several subsidiaries worldwide. The failure was in the lack of coordination of policy responses across the board to a global phenomenon, and the ripple effect it could have had to let just one subsidiary go under. To follow up, Jones asked how long it took Cummins and his team to stabilize the bank’s balance sheet. The guest explained that after the two trenches of government support reaching 45 billion sterling pounds, plus about 6-7 billion more of equity through recapitalization, RBS reached a stable financial situation in 2010—just in time for the euro crisis. To that statement, Jones replied by asking how much has having its own currency helped the United Kingdom and its banking system. Cummins believes is helped substantially. Having an independent fiscal and monetary policy helped enormously, he said, because in a situation of the sort there is a need of quantitative easing being seriously aggressive.

The topic of the talk reached its center argument when Jones asked how much has the previous crisis helped us to prepare for the current one? A lot, according to  Cummins, the banks today are much more liquid than a decade ago. To add to that, the loan to deposit ratio is much lower in the British banking system—that is, there are more deposits than loans in the banks, plus the now added 1.2 bn. Sterling pounds saved during the pandemic in the UK’s economy. A Q&A followed with the larger sentiment of understanding how to tackle the challenges ahead. The key is to partner with stable institutions, says Cummins, and to learn to be flexible and resilient. He closed with his outlook on things that are not going away any time soon, i.e., digital, renewables, AI.