Mark Bouris of Yellow Brick Road Wealth Management and ex Wizard Home Loans, a renowned market disrupter, gave a speech at the Risk Management Institute of Australasia (RMIA) National Conference in Melbourne last week. He made an appeal to the audience of risk management professionals.
Before the appeal, he gave a lesson on how financial markets work with respect to home mortgages. Then he explained how he disrupted the home loan market with Wizard Home Loans in the late 1990s and 2000s through securitisation of loans with a large dash of mortgage insurance. He was able to offer loans at a lower cost to consumers and gained market share quickly. The banks had to respond and did by lowering rates. The winner was the consumer. Oh, and Bouris did OK too, he sold the business for $500M in 2004.
After the Global Financial Crisis hit in 2008, the securitisation industry dissolved with a new layer of regulation (red tape) brought into the industry. Bouris explained that the difference between the late 1990s to early 2000s and now, is that the regulators (APRA and ASIC) are more risk averse. They have, for all intents and purposes, legislated disruption out of the industry. Their aim, to ensure the stability of the banking sector.
Bouris made the point that while their intent on the one hand is valid (no one wants banks failing), being too risk averse creates a different problem. We now have historically low interest rates and the Reserve Bank of Australia has run out of levers to stimulate growth. His warning, we risk becoming like Japan over the last 20 years. Stagnation across the key indicators of growth.
His appeal to us as risk professionals: That we understand that taking risk is essential and that risk management is key to taking risk successfully more often than not. That is, taking risk “eyes wide open” and winning more than you lose.
After my blog last week on Irregular Regulators where I spelt out the need to be highly persuasive when pushing back at regulators, Bouris’ appeal was apt and timely. Particularly, there were representatives of the regulators, the regulated and advisers to the regulators in the room.
Let’s all be happy living with risk. It is essential. Let’s all do it with eyes wide open, including the unintended consequences of “risk management”.