Academic journal article ABA Banking Journal

Confidence Needs to Be Led

Academic journal article ABA Banking Journal

Confidence Needs to Be Led

Article excerpt

WHAT A FRAGILE THING confidence is. Events of the past six months have seen it coalesce and evaporate several times. Within banking's ranks, counterparty confidence has been badly shaken. This is what keeps central bankers awake at night. But then that is their primary reason for being, because the workings of economies and, indeed, governments, hinge upon trust and confidence.

There is a delicate balance between caution and fear, and all of us can talk ourselves into a bigger problem than the facts support. Beneath our thin veneer of prosperity-induced confidence lies fear of losing that prosperity and ultimately a fear of destitution, chaos, and the unknown. This is hardly surprising, yet it can, and often does become, a self-fulfilling prophecy.

With any group, whether it be 300 Spartans holding off a million Persians at Thermopylae or a group of central bankers trying to keep a global financial community from bolting, trust is a matter of individual decisions. But these decisions are often influenced by events, peers, crowds, or a persuasive and strong leader. Such a leader can convince others the best chance for survival or success is in overcoming fears and having confidence that together they can overcome the onslaught. Or, as Ben Franklin put it to his fellow revolutionaries, "We must hang together, gentlemen ... else, we shall most assuredly hang separately."

In our world of rapid communications, the difficulty of shoring up confidence is magnified. No one person can keep markets from imploding into a recession.

Credit crunches--a part of that implosion--result sometimes from misguided policies, but more typically they are the result of a risk retrenchment following a period of a Gordon Gecko-like "risk is good! …

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