By Toh Hsien Min

I'm not sure how many people in Singapore can trace a direct line of sight between the financial dislocations that have taken down the likes of Northern Rock and Bear Stearns and an increase in their workload, but I'm one of the unlucky ones. Working in risk, I've always been aware of the, um, risk that problems in the financial markets will translate to increased regulatory scrutiny (particularly under the new Basel II banking supervision framework) as well as senior management demand for portfolio analyses. So far this year, I've managed to take a solitary day off - and none to put out this issue.

One of the cornerstones of banking supervision is the onus that it places upon senior management to understand the banking groups under their leadership. No doubt there is a huge amount of detailed work done between the risk review teams of supervisors and the specialised executives of the supervised banks, but it is clear that the buck stops with the CEO and the executive directors.

There is a range of subtlety about the problems besetting banking groups. Citigroup, for example, could have been in significantly less difficulty than it now finds itself if not for an obscure variant of the CDO that carries a liquidity put. Without getting too far into the technicalities, one function of CDOs is to allow financial institutions to shift assets and hence risk off-balance-sheet, technically by selling them. To make these assets more attractive, Citi often packaged in a liquidity put, a sort of support that enabled any investor who ran into financing problems and found it difficult to sell the CDOs to return them to Citi at par. So when last August nobody wanted anything to do with CDOs, Citi found itself having everything to do with a huge pool of dubious assets that nobody wanted.

By all accounts, the board of Citi had no inkling that these highly risky structures existed. Former Treasury Secretary Robert Rubin, then a senior advisor at Citi, is on record that he had never heard of liquidity puts before. But once they came to light, the Citi CEO Charles Prince recognized that his time in charge was over, and within days he called Rubin and said that the only "honorable" action was for him to resign.

Citi's USD 25B problem can be localised to one desk in the enormous organisation, but the CEO still resigned on account of it. In France, the CEO of Société Générale, Daniel Bouton, went through a more tortuous will-he-won't-he spell before finally stepping down on account of a trading scandal involving one person on the trading desk who had committed fraud. It is clearly the expectation in the corporate world that the leaders of these organisations are responsible for putting in the infrastructure, the governance framework, the organisational culture and not least the people to enable their organisations to succeed. If any link in the chain breaks, the leaders are held responsible. If this involves their stepping down, a new person comes in to fix the problem that the original chiefs were apparently unable to deal with.

I bring this up because it has become clear that although our government ministers are happy to have their salaries pegged to senior executives in the private sector, there is no way they will accept the structure of responsibility placed upon senior executives in the private sector. If something goes right, such as the performance of the Singapore economy in recent years, our ministers are happy to take the credit. If something goes wrong quite as spectacularly as the escape of a dangerous terrorist from a government installation, it's never the fault of the minister but always of someone down the line who had not kept watch as said terrorist took a leak. Resign and give up a salary pegged to top earners without regard for the top earners themselves rising and falling in the top earners list? Of course not: is there a better free lunch anywhere in the world, to have all of the rewards and none of the risks and responsibilities?

Singaporeans who believe nothing can go wrong in the city-state are "living in a make-believe world", said Minister Mentor Lee Kuan Yew in the aftermath of the Mas Selamat escape. It is a message that the government that is his legacy would do well themselves to heed, and to do so by accepting responsibility as well as reward.

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