All of that misses the point. A well organized financial institution - any financial institution - has a back-office and a front-office (and sometimes a "middle office"). The back office records and settles trades and sometimes measures risk. (The risk measurement function is sometimes at the "middle office".) If you have your systems right you can hire "risk takers" all you like. They won't kill you because the "back office" and "middle office" won't let them.
If anyone is able to break the risk limits, managing director, lowly trader, then that is a failure of the system and reflects directly on senior management who have a core function of making sure the systems work.
Oswald Gruebel (the CEO of UBS) took a different stance (hat-tip Kid Dynamite) and argued that management could not stop rogue trading. (Quoted Chicago Tribune.)
Speaking for the first time since UBS revealed the loss, Gruebel told the Swiss weekly Der Sonntag that the loss couldn’t have been prevented.
“If someone acts with criminal energy, then you can’t do anything. That will always be the case in our business,” the former trader said in the interview published Sunday.No Mr Gruebel: there will always be criminals, there will always be people who want to steal from your bank or go to the casino on your dime. You cannot monitor all those people but you can and should build systems that are as robust as possible to human nature and when you fail to do that you fail in your job.
But worse: your statement that "you can't do anything" is a statement that you are abdicating your duty. I hope that statement is misquoted because if I were on your board and you took that stance I would be seeking your resignation. To lose money to a determined rogue trader is an error - and all systems have holes. To deny you can do anything about it is to give up being a banker.
Still the best analysis of this trading loss comes from Macro-Man who makes a simple but clearly correct observation:
There is a really good reason why you don't promote people from back or middle office to front office: they know the systems well enough to cover their tracks. Better the norm where very few front office people have a clue what happens to a trade once they press "done". Leeson, Kerviel and Adoboli all had this in common. Note to management - if you want to hire a back or middle office guy to do a front office job, hire them from a different bank.Alas every second back-office guy wants to be in the front office. After all front-office guys are paid more and have more decision making power. Back-office is administrative and procedural. Front-office are "risk takers" which is somewhat more glamorous. But there are good reasons for discriminating against back-office guys, especially when bank systems are not robust.
Whatever: A message to the UBS CEO. An internally discriminatory hiring policy is not as good as robust systems but it is surely better than what you are doing Mr Gruebel.