28 Jul 2013 Back

Stern Lessons: Central Banking to Crowdfunding

LEARNING & RESEARCH: Two pieces of news from NYU Stern School of Business emphasize the New York school’s preeminence in finance, and trace the recent history of this troubled sector.

With echoes of the 2008 financial crisis, Sir Mervyn King, Governor of the Bank of England from 2003 to 2013 is to join NYU Stern and NYU Law School as Visiting Professor. Analyzing newer history research into ‘crowdfunding,’ a system spawned by the crash, is published by Stern professor Anindya Ghose and others.

At a time when banks are still focused on shoring up their balance sheets rather than taking people’s savings and recycling them into the economy through lending to businesses, crowdfunding has emerged as a fast growing alternative form of enterprise finance. 2013 estimates for crowdfunding top $5.1 billion, an 89% increase from 2012, and millions of projects big and small have benefitted. However there is clearly much yet to be learnt about the impact and possible unintended consequences of this and other forms of alternative finance and Professor Ghose’s report is timely.

Sir Mervyn is well placed to offer lessons on the mainstream banking sector. He was a teacher before he came to the Bank of England, early in his career as a visiting professor at Harvard and at MIT, where he reportedly occupied the adjoining office to Ben Bernanke, and later teaching at the London School of Economics.

“We are indeed fortunate to have someone of Sir Mervyn’s stature and experience on the faculty at NYU Stern” says Dean Peter Henry.

King led the UK’s central bank through the 2008 financial crisis and is credited with helping Britain avoid a general depression following the Lehman Brothers collapse. Although criticized for his initial response (in this he was one of many) he played a key role when the financial crisis was at its height. One example being his contribution to the emergency meeting of G20 finance ministers and central bank governors in November 2008; when with the world on tenterhooks to hear what policymakers were going to do, Sir Mervyn suggested his peers tear up the wordy detailed communiqué they planned to sign, and replace it with a short and emphatic statement that they were going to do whatever it took to restore stability to world markets.

“Our faculty, who were themselves deeply immersed in research surrounding the issues, solutions, and dissection of the financial crisis, will especially benefit from Sir Mervyn’s extraordinary role in guiding the Bank of England through this tumultuous period” says Henry.

Until these lessons are acted on and banks are fixed, the growth of alternative forms of finance to support commercial enterprise is inevitable and largely to be welcomed. Funding Circle in the UK, Kickstarter and IndieGoGo in the US are thriving new markets for companies and start-ups to raise capital.

However in their research, Anindya Ghose, NYU Stern Associate Professor of Information, Operations and Management Sciences and co-Director of the Center for Business Analytics, with Gordon Burtch at the University of Minnesota Carlson School of Management and Sunil Wattal at Temple University’s Fox School of Business, in quantifying how donors influence each other in the crowdfunding process, found that quick fundraising, while seemingly desirable, can have downsides.

As a recent guest on BBC Radio’s Desert Island Discs, Mervyn King revealed that as Governor he had instructed his officials to clear his diary every morning so that he had time to read around and reflect on the issues facing him that day; a discipline of learning and reflection that offers a leadership lesson for all finance professionals - mainstream and alternative.

Photos: 1) Crowd at the Bank of England, the G20 Meltdown protest in London on 1 April 2009 - source Wikimedia Commons; 2) Sir Mervyn King, speaking to a committee of the British parliament - source BBC News; 3) Associate Professor Anindya Ghose - source NYU Stern.

Further Information

Executive Education at NYU Stern School of Business

Crowdfunding - read the full paper, “An Empirical Examination of the Antecedents and Consequences of Contribution Patterns in Crowd-Funded Markets."

Read about Anindya Ghose

Read about Professor Ghose's short course Leveraging Social Media and Digital Marketing for Business

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