Women as Regulators?

I am probably going to get myself in a heap of trouble with this one, but I am responding to a reader’s request. I left a comment on another blog and have been asked to elaborate on it.

Yesterday, I featured and commented upon a post by Willem Buiter, in which he ‘fessed up that, contrary to usual form, he didn’t have any great ideas for what to do to reform the financial sector once the crisis had passed. In particular, he despaired of being able to find regulators up to the task:

If regulation is to be effective, it may have to be hands-on and quite intrusive, if only for the regulator to acquire the information (s)he requires to make an informed judgement.

Effective supervision runs into some rather impenetrable obstacles.
First, a $5 million dollar a year trader will run rings around a $150,000 a year regulator.

Second, regulators involved in intrusive and hands-on regulation are virtually guaranteed to be captured by the industry they are meant to be regulating and supervising. This regulatory capture need not take the form of unethical, corrupt or venal behaviour by the regulators or members of the private financial sector. It could instead be an example of what I have called cognitive regulatory capture, where the regulator absorbs the culture, norms, hopes, fears and world-view of those whom he regulates. We cannot just appoint ethical Vestal Virgins to be regulators, regulators who start out pure and stay pure despite their daily associations with people who don’t instinctively play by the rules of the House of the Vestals.

As an aside, I’m not certain Buiter’s plutocratic assumption that pay scales equal ability to be persuasive. Lowly Nick Leeson, who blew up Barings, and Jerome Kerviel of SocGen did a great job of snookering handsomely-compensated higher ups. I imagine a lot of regulatory work would be with admin and back office types, with trading desk heads hauled on the carpet only to explain anomalies. And those explanations might be cross-checked with risk managers, which means that clever chatter would still need to comport with observable facts.

By way of analogy, a former district attorney told me that FBI detectives are not the brightest bulbs, but they often get their man by virtue of tenacity. I suspect with a regulator that belief in one’s mandate and doggedness can do a lot to level what might otherwise appear to be a very uneven playing field.

But nevertheless accepting Buiter’s observations as having some validity, I commented:

The issues you raise regarding how to attract and retain individuals who can stand up to traders and executives and avoid absorbing their charges’ mindset seems insurmountable, but let me offer a partial solution.

Women who’ve been in the industry.

I hate bringing up gender (the stereotyping is pervasive) but women have much lower odds of making it to the top and getting the same comp for their work as the boys and they are acutely aware of it. Many of the women I know who are in or have been in the industry don’t buy into the culture because they are ever and always outsiders.

Reports from boards in the US and Australia say that women directors are far more inclined to do their homework and ask tough questions than men are. Boards are as clubby as you get. If women aren’t cowed in those settings, that suggests they might also stand their ground in regulatory roles (the horrific example of Sheila Bair notwithstanding).

Women who’ve performed well in the City or the Street often find it impossible to work out part-time positions when they want to have children, except in those rare admin jobs that require substantive knowledge. You can get good women on the cheap with well-designed mommie track roles. Regulators should sit up and take notice.

Let me digress a bit. I am loath to single out women merely because I routinely read dumb generalizations in the business press about how women managers are more affiliative, more nurturing.

These stereotypes are galling as the Larry Summers “women are no good at math” because when you are talking about groups as large as men and women, the variations within each group are going to be far larger than the variations between groups. And since a comparatively small sub-set winds up going into Wall Street jobs, serious corporate roles, or scientific research, you can reasonably expect to find a sample that is quite different from the norm (even if we assume the norm is a product of genetics rather than culture).

Now admittedly, my own sample by nature is pretty skewed too, but I haven’t met a single woman manager or executive I’d call nurturing. I’ve met some who are highly competent and polished, some who are control freaks, some who are completely disorganized and terrible to their subordinates, but are so good with clients it doesn’t matter how much havoc they created internally. And I’ve met a couple, one in M&A, who are as tough as they come. And my impression is that the killer types didn’t adopt that behavior to keep up with the boys; instead, they found an environment where they could give their inner sadist free rein.

So the notion that women might be good candidates for these roles is not based on any romanticization about the fair sex, but in the recognition that (with a very few exceptions who figure out how to overcome considerable odds) they are outsiders who nevertheless would have gotten a good deal of product and industry knowledge. And the difficulty most competitive firms have in creating mommie tracks means that a regulatory job, which would keep them current and give them a lot of contacts, could look very attractive to women during their childrearing years.

As the reader who urged me to elaborate observed, “Think of the FSA being run by a British equivalent of Tanta :).”

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  1. Yves Smith


    E-mail me. If you got it right, I’ll shout you a drink when I get to Sydney (possibly late Oz spring).

  2. bobo7874

    A big drag on the effectiveness of people working as regulators is that many of them want to create or protect their exit options in the private sector. Many regulators are junior folks trying to use the government as a stepping stone to a desirable private sector job, experienced folks trying to switch to a better private sector job, or experienced folks who want a take a beather but preserve their option of going back to the private sector.

    One thing that would help regulators is if the government restored the traditional pension system. The security of a pension would reduce the pressure that some regulators feel to protect their exit options.

    As to bankers/traders — men or women — becoming regulators, that is a tough sell as long as it’s more attractive to take a corporate development job in pharma or elsewhere.

  3. Tim Worstall

    “And the difficulty most competitive firms have in creating mommie tracks means that a regulatory job, which would keep them current and give them a lot of contacts, could look very attractive to women during their childrearing years.”

    What a stonkingly good idea.

    Well done that man, well done indeed.

  4. Jennifer

    Good post (I was sent over by Tanta). I agree with your analysis that it isn’t some genetic difference in women that might make your idea work, but the combination of being inside yet not of the club. More of a class difference than a real gender difference.

  5. Anonymous

    A few I know: all outstanding.

    Annette Nazarath, Lori Richards, Maryann Gadziala – SEC Commissioner
    Danielle Nouy – Commission Baincare (France)
    Christine Cumming, Sarah Dahlgren – Federal Reserve Bank of New York
    Sandy Braunstein, Deborah Bailey – Federal Reserve
    Andrea Pack – UK-FSA
    Julie Williams, Grace Dailey, Kathy Dick, Delora Jee, Nancy Wentzler – OCC
    Sabine Lautenschläger-Peiter – Bundesanstalt für Finanzdienstleistungsaufsicht

  6. Yves Smith

    The comment deleted was intended to be sent as an e-mail, with specific instructions not to be posted, and was instead mistakenly provided as a comment.

  7. Anon

    The head of Compliance (equity side) at SocGen was and is a woman.

    The deputy head of equity market risk at SocGen was and is a woman.

    Just saying…

  8. Daniel Newby

    These stereotypes are galling as the Larry Summers “women are no good at math” because when you are talking about groups as large as men and women, the variations within each group are going to be far larger than the variations between groups.

    That’s not what Summers said. The mean male-female difference in math ability is indeed inconsequential. However measurement shows there are significantly more males at the high ability end of the spectrum. The low end too; the bell curve has no favorites. And none of this is solace to American men, who are themselves swimming against the Asian IQ tsunami.

    Not that this has much bearing on financial regulation. Most regulatory work is down at the bachelor’s degree level, where there are loads of suitable women. If you wanted a regulator that could out-quant the quants, there would be few women candidates, but that’s a losing strategy anyway. In fact an argument can be made for picking lower IQ people as regulators, as they will have fewer glittering equations to delude themselves with and must instead take refuge in things like structurally-recurring sales.

  9. Yves Smith

    I don’t mean to put you on the spot, but I’d like to see these studies that show that there are fewer women with high-level math ability. I’m not convinced this isn’t significantly a function of a) lots of subtle pressures against women in secondary school/college math (I’ve seen it, at least in my youth, and can give you examples if you care to be bored) and b) similar potential for researcher involvement in testing to bias outcomes.

    Expectancy theory is powerful, and our culture has strong stereotypes that girls do literature, boys do math. And these are unconscious and just about impossible to override, as the Harvard work on implicit bias shows, so a researcher might not even recognize his own predispositions (Malcolm Gladwell, who is half-black, was horrified to learn that he is biased against blacks).

    Of course, 200+ years ago, girls didn’t do literature either; Jane Austen did not publish her first novels under her name.

  10. Anonymous

    Oh heck, I hadn’t meant to set off quite such a conversation here and at CR.

    Anyway, one of the things that got me wondering was the idea that regulators are any better at setting up mommy-friendly careers than Wall Street firms are. That’s not been my observation. I’m not mommy-track, but I’ve seen plenty of women leave financial regulatory type jobs because family-friendly hours were not feasible (whether part time or just 8:30 to 5:30).

    (I suppose I should pick a handle…)

  11. Yves Smith


    Didn’t mean to disagree with your other point; I can see how it would be easy for someone with some knowledge of advanced math to be flummoxed by a quant, particularly if the quant was sincere, as all these guys moronically talking about 15 standard deviation events are (they all have read, or should have read, Madelbrot; why are we even having this conversation?).

    Per my other near-rant, again it may be sample bias, but I know of one woman got into MIT who was discouraged from going (literally, she was told something like, “I know someone like you, tremendous ability, but she committed suicide there”); another who did very well in engineering school (remember that takes spatial ability, which women are supposed to be bad at) and wound up in the law due to inability to get a job in the field in which she trained. I can give you at least another half-dozen examples without thinking too hard of women being subtly or overtly being discouraged from pursuing math or science.

    So (again a generation to half generation ago) why should women pursue getting these skills in the face of such negative feedback?

  12. Yves Smith

    Anon of 5:14 PM,

    I was afraid my idea might be wishful thinking. In a Wall Street environment, it’s not hard to see why part-time roles don’t work well (everything is market driven and markets move too fast for you not to be pretty on top of them).

    Perhaps it’s lack of sufficient knowledge on my part, but I have a harder time seeing why some roles in a regulator couldn’t be created that were part time (research reviewing industry trends, analyses across sectors, perhaps even some narrow aspects of regulation and supervision, and perhaps most important, the design of supervisory protocols and analyses). But it takes some will to do that, and there may not be any.

    Again, an isolated data point. I know someone at the World Bank who developed chronic fatigue syndrome, and they worked out what amounted to a part-time job for years. Admittedly, this one was person, not a group of people, but I think of the World Bank, which generally expects people to be on the road 25% of the time, as culturally less inclined towards that practice.

    Long winded way of saying I suspect there is potential to make this happen, but managerial inertia is huge.

  13. Yves Smith

    Anon of 4:36 PM,

    I didn’t say women were paragons, merely that you had better hope of getting people with substantive knowledge on the cheap and who might be more predisposed to be skeptical among women.

    And your data points, while interesting, aren’t conclusive. These women may or may not have been empowered to do their jobs. At some firms, compliance can get just about anyone fired, but that isn’t the norm (at least as far as I can tell). If you want to be really cynical, you could take the point of view that the fact that these jobs were held by women meant they weren’t supposed to be taken seriously.

    And if the equity market risk people reported to the head of equities (as opposed to a management committee or equivalent) they were very circumscribed in their authority.

    Richard Bookstaber had a revealing post on how far most risk managers get with traders.

  14. DMD

    I lost you at the “mommy track.”

    As if fathers are irrelevant.

    How about a well-designed “daddy track” so that fathers aren’t punished upholding their duties as fathers?

    Or for that matter, a “hubby-track” so that men have enough libido left after work to perform their conjugal duties?

    These questions are at least as pertinent as any other questions anyone could ask about professional employment.

  15. Yves Smith


    Perhaps I’m prejudiced by my experience with Wall Street firms, first as an employee and later as a consultant. Part of the reason for focusing on women was that they typically remain outsiders, no matter how hard they try to fit in. That would tend to make them less susceptible to brainwashing when employees, and thus a mind-set that could be quite valuable in a regulatory role. As Jennifer said above, it’s a class issue rather than a gender issue per se.

    And I hate to point out that the impediment to “daddy tracks” is much more cultural than company policy based. I am going by dim memory, but the take-up by men of paternity leave is almost non-existent. Among the many two career couples I know, I can think of only one where the woman remained full time and the man did not, and that was because he was fired and tried launching a fund with no success. And from what I can tell, even though he is at home most of the day,

  16. Anonymous

    I read your comments about engineering/math with interest, since i’ve taught math and comp sci classes at the ugrad and grad level (adjunct) for almost 20 years now. At the ugrad level it has been rare to get female calculus students, and rare to get females past the freshmen level in comp sci.

    Is there bias at earlier levels? Perhaps. But in a very real sense, these subjects and the most recent applications require you to be up-to-date. Lags in employment will be fatal. Try taking five years off from computer engineering jobs…you’ll have to learn everything all over again. Same with higher level math. The latest applications change and new ideas come into play all the time. Do some females self-select because they know this? Or is it bias at an early age that steers them? Or is it honestly genetic predisposition? I think Larry got the short end because he was trying to ask these questions but, as usual, it didn’t come out right.

  17. bobo7874

    A couple points regarding IQ:

    First, there are a number of studies showing greater variance in IQ among men than among women, and thus, more a higher incidence of men at the extremes, and a lower incidence of men around the mean, than among women. Here are links to coverage of the studies:



    Second, studies by the US military have shown that IQ is not normally distributed. Emperically, studies show more smart and stupid people than one would expect if IQ were normally distributed.

    As an aside, I have no idea to what extent any of these differences in IQ are genetic or cultural, and take no position on that. I also have no idea to what extent these differentials in IQ impact performance, relative to other factors.

  18. anon514

    Funny how the minute you start to talk about gender and work, particularly in finance, someone has to claim this is something to do with the advanced math required.

    That’s completely ridiculous.

    Yves’ point was about regulators versus executives and traders in Wall St firms. Yes, Wall St firms hire lots of quants. They’re not the ones making policy or the calls on deals. The questions the regulators would be asking are things like, “Shouldn’t you be verifying that the appraiser/seller/broker isn’t taking a kickback?”, not “are you using Runge-Kutta or Finite Element Methods to solve your option valuation model?” Most Wall St execs couldn’t solve a PDE if their lives depended on it.

    PS: I chose a handle. :)

  19. foesskewered


    As a female who did literature, have mixed feelings about what you said . From what can be recalled of math, physics and chemistry lessons, it wasn’t so much the difficulty level as the dead boring memorising, repetition of formulas, practise till you drop routines that “killed” the interest.

    Expectations, particularly re women are always a dampener, still remember (what would be the asian equivalent of US grade school) a primary school teacher once said to me that I should improve my writing posture ‘cos I could end up being secretaryto the PM, mind you , not the PM or any politician but the secretary to the PM and the upshot of it was the school was an all girls school set up by french missionaries to allow girls to be educated who would otherwise not be.

    Even in arts there is discrimination; a certain doctor at a prestigious university once said that it was surprising for (my classmate) a girl to do a session on Dickens as it was more usual fcor the guys to handle such a tough writer; and yep that was in the 20th century, go figure!

    P.S. never did Dickens , at least not an essay but really ‘cos he was a real bore. BTW George Eliot was female too! (this is off topic but initially thought you were female, sorry! for some reason thought you were Eve/Eva!

  20. bobo7874

    Agree with prior posters that IQ is overrated in finance and other professional jobs. I thinks social skills and self-discipline generally are more important to performance, provided one meets the hurdle of a 130 IQ. And I think there are at least as many women as men with the requisite mix of those 2 factors and a 130+ IQ, maybe more, who knows.

  21. Lune

    Interesting thoughts, Yves.

    While your suggestion is intriguing, would being an outsider also be an impediment to being a regulator? I agree that it lowers the chance for the regulator to be captured, but OTOH, so much of understanding a field is being able to “think” like the players, and so much information comes informally through old-boys networks and the such.

    If a regulator’s sole job was to collect official data and compile reports and spot anomalies in the data stream, then I agree that women (or other people not susceptible to capture) would be great.

    But I suspect that especially higher-level regulator roles require informal data of the type passed around at the local watering hole while talking about yesterday’s Yankees game. After all, there’s a reason why the NY Fed is usually tasked with keeping an eye on Wall St. It’s not as if the Chicago Fed doesn’t have access to the same objective data.

    FWIW, I’m a guy in a very male-dominated field (not in finance, though), who’s had the occasional female senior and junior colleague. What I found is it takes a huge amount of conscious effort, even as a boss, to include female juniors in “the club”. But the effort was worthwhile because being part of the informal group was important to learning the field and developing their careers.

    I wonder if the benefits of not being captured are outweighed by the decreased insight and informal data that often goes along with it?

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