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The Shape of Things to Come

December 2013

Gerald Hassell

Chairman and Chief Executive Officer, BNY Mellon

Gerald Hassell, BNY Mellon Chairman and CEO speaks at The Economist's World in 2014 Summit in New York City

Risk in a post-crisis world. What is different?

Gerald Hassell:  I actually think the U.S. economy is doing quite well. Underneath all of the numbers, housing prices are starting to recover. The consumer's in good financial shape, relatively good financial shape, and recovering. Corporate America is in fantastic shape. The financial institutions' leverage has come down enormously. Liquidity is up. What the regulators around the world are trying to do vis-a-vis reducing the risk in large financial institutions I think is actually occurring. And the managements of large financial institutions clearly understand that we went into the financial crisis way over leveraged and were simply too risky and we all learned our lessons.

One message I would send to the audience and to your readers and listeners is I do think the financial system is much, much, much healthier today than it was five years ago, and I feel quite confident that the financial institutions are poised to help that economic growth.

How can risk be better managed in the future?

Gerald Hassell:  Let's start with more capital. Let's make sure there are more buffers to absorb losses should losses occur, because financial institutions are in the business of taking risk. That's what we do. And if we didn't, then there wouldn't be impetus for economic growth. So the question is making sure there is sufficient capital to absorb losses.

The second issue is making sure there is sufficient liquidity to absorb potential runs on financial institutions. Both of those key ingredients to the stability of financial institutions are being addressed by either the Basel Committee, universally across the globe, or here by the Fed and the various regulators here in the U.S., or by the FSA in the UK and various other regulatory bodies. So they're all coming at it basically the same way.

Where do you see investment opportunity?

Gerald Hassell:  One of the places people are going is alternative assets. And so, you're seeing a pickup in allocations to alternatives: real estate, commodities, oil, a variety of different instruments, private equity funds. And so you're seeing a greater shift in allocations from pension funds, endowments, foundations, private clients, into the alternative asset class rather than the traditional equity index funds or individual stocks or fixed income. And so a greater percentage is clearly moving in the alternative space, and we see that as a long-term trend.

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