The End of Banking has reached the quant community that invented so many of the derivatives and statistical methods that turned foul during the financial crisis of 2007-08. Reason enough for Dan Tudball, editor of Wilmott magazine, to ask Jonathan McMillan what quants should do in a world without banking. He was relieved about Jonathans take on this delicate question:
“Quantitative methods were only a tool with which to take excessive risks; the motivation to do so was that banking (the activity) could no longer be constrained. The financial crisis demonstrated that banking in the digital age does not work. Banning the tools from the digital age would be the wrong conclusion. The right conclusion is to end banking.”
Indeed, modern financial techniques play a critical role in enabling a modern financial system without banking. Even if you are designing the latest generation of exotic derivatives or optimizing risk-weighted models for banks to take more risk with less equity, rest assured that plenty of useful tasks wait for you in a financial system without banking. Relieved to know that information technology plays a crucial role for us and that we do not want to turn back the time, Dan notes:
“Since its publication in the latter part of last year, the book […] has generated discussion that deserves a bigger platform, both for the proposals made in the book and the style in which those proposals are made. It is exceptionally readable.”
To read the full article, you need to subscribe (or check out whether your university client has the required subscription).