Interviewed by Tony Boyd of Business Spectator.Tony Boyd: James, we've just finished a profit reporting season where at least two of the major banks said they were effectively unaware that many of their customers' loans had gone bad quite suddenly. Now, you've put out a paper which talks about the failures of the banks' risk management processes. Could you just tell us what's going wrong?James Deighton: Sure. I will outline three things that I think are going wrong. The first one is the losses that we've seen, the impairment losses we've just seen, have been largely in the single name exposures. We've seen some provisions made in the small to medium enterprises, but the real surprises that the banks have had, have been around the growth and the losses within the small to medium enterprises. This is the part of the market that for them is an area which they have a limited view as to where the real risk is. They're very good at managing the large exposures. Small to medium businesses are where they could have anywhere between $2 million to $20 million exposed. The issue that they have in that area is that they rely on their relationship management force, field force, who are typically a sales force, to actually take a degree of portfolio ownership where they understand the future performance of those companies that are in their portfolios and where they're able to make intelligent and quality assessments of the future cash flow performance and therefore their ability to meet the obligations for the lending facilities. So, the first failing has been around the skill set and the capabilities of that frontline force to actually perform that portfolio ownership role. The second area has been around the ability of the banks to prevent themselves from entering some of the large, predominantly single name exposures that they've then lost money on; and an example I'd give there would be yesterday we saw the announcement of the failing of Timber Corp and within that the banks lost $600 million plus. ANZ lost $500 million within that deal. We do a lot of work with the private equity firms when they make investments into companies. We typically are engaged by those firms to spend, and they spend in the order of $200,000 to $300,000 in doing a due diligence in order to make a $10 million to $20 million investment. That's the risk mitigation they use to make sure that the money they're putting into the firm is a good investment. The question I'd ask would be how much money and how much effort did ANZ or did the other banks put in to making their assessment of Timber Corp and did they do the sort of due diligence that a private equity firm would do and the parallel there; five years ago, not many private equity firms spent that sort of money on doing due diligence. Today most of them wouldn't go ahead and make an investment