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"In this excerpt from Broad Influence: How Women Changing the Way America Works, author Jay Newton-Small looks at the new class of female regulators who came to power in the wake of the financial crisis, and investigates the research that suggests that women are less likely to take big\u2014and potentially disastrous\u2014risks than their male counterparts.\nIn February 2009, the national climate was one of anger: at Wall Street for the stupid risks that led to the near collapse of the financial system; at George W. Bush, the first MBA president, for his complicity in the mess; and at Washington for its uneven response. Congress was fruitlessly scrambling to figure out how to claw back $169 million in bonuses given by insurance giant AIG to its executives using taxpayer money, an embarrassing episode that only further enflamed populist tensions. And the administration was huddling on how best to rescue Citibank, one of the world\u2019s largest banks, for the third time.\nIn the first and second Citibank bailouts, Federal Deposit Insurance Corporation chair Sheila Bair had argued for imposing tougher conditions on the firm, which she felt hadn\u2019t done enough to shore up its messy finances. Bair was scheduled to join an emergency conference call on a Sunday in mid-March with Treasury secretary Tim Geithner and other regulators to decide how to move forward. She wanted Citigroup CEO Vikram Pandit and several of his top aides to go. She\u2019d pushed for this before, noting that Pandit, an investment banker with little commercial banking experience\u2014someone she viewed as a gambler with the bank\u2019s money, instead of a protector of its depositors\u2014helped lead to Citibank\u2019s weakness. But now she was in her strongest position yet to oust him.\nIn the lead-up to the financial crisis, Citibank executives knowingly hid extensive problems in the mortgages the bank was securing, which contributed to the financial system\u2019s collapse. Citibank would eventually own up to its mistakes, admitting guilt and paying a fine of $7 billion, one of the largest ever levied on a bank, to the Justice Department in July 2014. The cover-up by Citibank and other financial institutions masked the severity of the crisis until it was nearly too late.\n\n\t\t\t\t\n\t\t\t\n\t\t\t\nBair had been pushing to downgrade the FDIC\u2019s main rating of Citibank, which other regulators worried would spook the market into selling off Citi\u2019s stock. In order to avoid the downgrade, Bair was demanding that Citi fire Pandit, along with a laundry list of other conditions. Bair was later \u201Cflabbergasted\u201D to learn in Ron Suskind\u2019s 2011 book Confidence Men that Pandit had gone to Geithner before their scheduled call and asked to make his own deal with the Treasury. But that office, Bair later pointed out, had no say in the FDIC\u2019s ratings.\n\u201CIt was over the top,\u201D Bair recalled. \u201CI think they thought that that was going to be the way they could do a backdoor bailout. We just had profoundly different worldviews of how these kinds of problems should be handled. This wasn\u2019t just gender; there were also different philosophies. There were a lot of complex things going on there, but I use Vikram going to Tim as an example: if men do not want to accept your position of power, then they will sometimes try to go to another man who they feel may have power over you to avoid having to deal with you.\u201D\nBair went into the call thinking that her clampdown on Citibank was going to be successful\u2014only to be blindsided by Geithner with a whole new proposal. \u201CYou just need to stand your ground and hopefully your colleagues will back you up and say, \u2018No, you need to go talk to Sheila, that\u2019s her job,\u2019 but it doesn\u2019t always happen,\u201D Bair said with a sigh. In the end, they compromised. Geithner persuaded Bair to allow Pandit to stay. To address Bair\u2019s concerns, Pandit brought in executives with commercial banking expertise to help Citi through the crisis.\nThe experience was a searing one for Bair, and it prompted her to push Congress to grant the FDIC more power when Congress rewrote banking regulations in the wake of the crisis. She persuaded President Obama to give the agency \u201Cresolution authority\u201D\u2014the ability to do whatever it saw fit to resolve the bank\u2019s problems, including taking it over or closing it\u2014over \u201Ctoo big to fail\u201D institutions as well as the smaller banks the FDIC was used to dealing with. The Treasury and the Federal Reserve tried to water down the proposal by requiring their sign-off. Bair testified before the House Financial Services Committee that such a move would essentially destroy the FDIC\u2019s ability to act on a failing bank. The chairman, Massachusetts Democrat Barney Frank, agreed and left the authority in the FDIC\u2019s hands alone. So should there be another bank meltdown, the head of the FDIC won\u2019t have to go three rounds with the Treasury on how to bail out a giant. \u201CThe markets,\u201D Bair said, \u201Cmust be convinced that there is no such a thing as \u2018too big to fail,\u2019 otherwise they will never stop taking crazy risks.\u201D \nBair was one of a class of new regulators put in place to see that the bailout of Wall Street was done responsibly. Notably, the new top cops were women. Though Bair had first been appointed by George W. Bush, she proved so effective that Obama pointedly asked her to stay even after she offered her resignation. Bair was soon joined by other female regulators. Senate majority leader Harry Reid named Harvard Law School professor Elizabeth Warren to head the committee overseeing how Treasury spent the bank bailout funds. Reid also encouraged Arkansas Democrat Blanche Lincoln, a member of the House Banking Committee, to spearhead the reform of derivatives\u2014financial products that derived their value from that of a bundle of underlying assets. A succession of women have led the Securities and Exchange Commission, which regulates the financial sector: Mary Schapiro, Elisse Walter and Mary Jo White. Three of the five SEC commissioners are women. Obama named Christina Romer his first chair of the Council of Economic Advisers and later appointed Janet Yellen to be the first female chair of the Federal Reserve in early 2014. Four of the five federal trade commissioners were women. Christine Varney and Sharis Pozen have headed up the Justice Department\u2019s antitrust division. And Obama\u2019s second attorney general, Loretta Lynch, took on Wall Street as the U.S. Attorney for the Eastern District of New York and vowed as AG to make the prosecution of white-collar crime her top priority.\nThe heart of the problem was risk, something mostly male Wall Street seemed to take irresponsibly and something the female regulators were sent in to mitigate. It\u2019s a clich\u00E9d image: the straying reckless man and a woman at home holding things together. But there is some underlying truth in it. Neuroscience has shown links between risk taking and testosterone, which is 15 times as prevalent in men as in women. Many world leaders, from Bair to International Monetary Fund chief Christine Lagarde to British Labour deputy leader Harriet Harman, who was then Prime Minister Gordon Brown\u2019s No. 2, to Japanese prime minister Shinzo Abe, became convinced that if more women had been working in senior Wall Street positions, the global financial crisis probably wouldn\u2019t have happened. And many saw the crisis as a wake-up call for Wall Street to diversify its ranks.\n\u201CI do believe women have different ways of taking risks, of addressing issues . . . of ruminating a bit more before they jump to conclusions,\u201D Lagarde said. \u201CAnd I think that as a result, particularly on the trading floor, in the financial markets in general, the approach would be different. I\u2019m not suggesting that all key functions and roles should be held by women. But I think that there would have to be a much bigger diversity and a better sharing of those functions and roles.\u201D It was a call for critical mass in the global markets.\nThere\u2019s a good deal of evidence that women are inherently risk-averse. Almost all\u201497 percent\u2014of microlending is done to women in the developing world. Microcredit started in Bangladesh in 1983 and has spread across the developing world since. Development banks give out small loans to individuals or groups to start small businesses. Some men in those cultures were too prone to drinking or gambling away the funds, but women have proved themselves trustworthy enough to use the money for business and family. Most of the world\u2019s biggest microfinanciers will lend only to women.\nA 2001 study of 35,000 U.S. households\u2019 portfolio behaviors found that women\u2019s transaction costs were lower\u2014meaning they shifted investments less and so paid fewer fees\u2014leading to higher net returns on investment. A 2009 study by researchers at the University of Hannover in Germany surveyed 649 fund managers in the U.S., Germany, Italy and Thailand and found that female fund managers were \u201Cmore risk averse and shy away from competition in the tournament scenario\u201D\u2014meaning women didn\u2019t like the idea of kill-or-be-killed, zero-sum games. And a 2012 study of 7,000 fund managers worldwide, 36 percent of whom were female, found that women were more cooperative and aimed at \u201Cfair play.\u201D The study found that women rated higher than men in 12 of 16 leadership competencies, including \u201Cdisplays high integrity and honesty,\u201D \u201Cdevelops others\u201D and \u201Cbuilds relationships.\u201D\nIceland is an oft-cited lesson in risk and the power of women to mitigate it. Iceland\u2019s economy collapsed in the 2008 worldwide financial meltdown. Much like the United States, Iceland invested heavily in bad debt and overleveraged healthy assets, but Iceland\u2019s is a small economy. The tiny island nation of just 300,000 with a gross domestic product of less than $20 billion experienced the most drastic bubble of the downturn, with a huge boom followed by a devastating bust. Two women who were appalled by the unhealthy risks their male co-workers were undertaking founded Audur Capital, a financial-services company with the goal of incorporating \u201Cfeminine\u201D values in the financial sector. They avoided investing in what they knew to be distressed debt and were literally the only Icelandic company to emerge from the crisis unscathed. The crisis led to a wave of women being elected to office, including Premier J\u00F3hanna Sigurdard\u00F3ttir.\nHaving more women on the trading floors may even chemically dampen risky behavior. Two University of Cambridge researchers measured the levels of steroids, including testosterone, adrenaline and cortisol, in 17 male traders over an eight-day period at a London bank. The traders with the highest levels of testosterone in tests of their morning saliva were more likely to reap more profitable trades. When a male trader hit a six-day winning streak, making more than double his daily profit, his testosterone levels were up 74 percent. In studies of lab animals, testosterone has been shown to increase risk taking and fearlessness. The risk is that bankers and traders are training their bodies to create financial bubbles, according to researchers John Coates, a former Goldman Sachs and Deutsche Bank trader turned neuroscientist, and Joe Hebert. Biology shows that there is a \u201Cwinners effect.\u201D When two male lions fight for a mate, the winner maintains higher levels of testosterone while the levels in the loser drop, Coates wrote in his book The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust. The bankers were compounding the winners effects: with each successful new gamble, their levels rose and they were prone to take bigger risks.\nThe presence of women\u2014and the absence of other men\u2014tends to reduce the men\u2019s testosterone. Men who stay home with their wives and children have markedly less testosterone then men who are single or don\u2019t spend much time caring for children, studies show. Coates began his research after observing his fellow traders in the 2001 dot-com bubble. \u201CNormally a sober and prudent lot,\u201D Coates told Bloomberg News, \u201Ctraders were becoming by small steps euphoric and delusional.\u201D They were \u201Coverconfident in their risk-\u00ADtaking, placing bets of ever-increasing size and ever-worsening risk-reward trade-offs.\u201D\nThen came the crash, and here too, the researchers found, male hormones compounded the bubble effect. The crash resulted in anxiety, which produces high levels of cortisol in men, leading to \u201Cclouded judgment . . . You tend to see danger everywhere rather than opportunity. In that situation you don\u2019t do anything. People get paralyzed by that fear. [It] takes over so they are no longer thinking rationally. They are no longer doing the things that they should be doing to make money,\u201D Coates said. \u201CI think [testosterone and cortisol are] partly responsible for market instability.\u201D\nA separate 2012 study found that women\u2019s bodies react to high levels of cortisol broadcast by men by secreting more oxytocin. Oxytocin \u201Cpromotes nurturing and relaxing emotions,\u201D the study said, and is \u201Cpositively correlated with the willingness to cooperate and the expectation that others will cooperate.\u201D In other words, it\u2019s the antidote to cortisol. More women on the trading floor could biochemically end bubbles. They would reduce testosterone and blunt the upswings and mitigate cortisol and the panic freeze that happens in the downswing of bubbles.\nIn the immediate aftermath of the global financial crisis, a panel of high-powered bankers gathered at the World Economic Forum in Davos, Switzerland, and debated whether, if Lehman Brothers had been Lehman Sisters, the investment giant would still have failed. In the end, they agreed, Lehman Sisters would\u2019ve made much less money during boom times but would probably still be around today.\nExcerpted from Broad Influence: How Women Are Changing the Way America Works. Published by Time Books, an imprint of Time Inc. Books. Copyright \u00A9 2016 by Jay Newton-Small. Available wherever books and eBooks are sold."^^<http://www.w3.org/2001/XMLSchema#string>
<http://fortune.com/2016/01/05/wall-street-women-financial-crisis/>