Supplementing the Leverage Ratio with a Gender Ratio

The idea of a leverage ratio as a useful prudential tool has by now entered the mainstream. (See, for example, this week's Economist: "There is now impressive momentum behind the idea of a leverage ratio, a measure that puts a fixed ceiling on the total amount of assets that a bank can hold relative to its capital.") One less conventional idea could be a gender ratio. In a piece on VoxEU, Anne Sibert argues that the financial crisis was testosterone-fueled:

UK Labour cabinet member Hazel Blears suggests a second reason, commenting that, “Maybe if we had some more women in the boardrooms, we [might] not have seen as much risk-taking behaviour” (Sullivan and Jordan 2009). Indeed, the financial services industry – one in which lap dancing is apparently considered appropriate corporate entertainment (UK Equality and Human Rights Commission) – is overwhelmingly male dominated. Women hold only 17% of the corporate directorships and 2.5% of the CEO positions in the finance and insurance industries in the US (Sullivan and Jordan 2009). In Iceland – home to a particularly spectacular collapse – it is said that there was just one senior woman banker, and that she quit in 2006 (Lewis 2009). If men are especially prone to being insufficiently risk averse and overly confident, then this male dominance may have contributed to the financial crisis.

One way to deal with the problem could be to introduce a gender ratio that requires a certain percentage of women to be in the ranks of senior management of financial institutions. But there's something missing from Sibert's argument - if female managers are good for business, then why don't banks hire more women in the absence of regulatory pressure? It seems to me that the real issue is one of governance, i.e. how to make senior bank managers more responsible to their shareholders over the long run. If women are good for long-term profits - as Sibert argues - then banks should welcome women with open arms.