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Wall Street might have been a safer place if it had been “Lehman Sisters”

Gender equity in finance isn’t just some feel-good exercise. It could create a more resilient, productive economic system for everybody

Bank of Canada deputy governor Carolyn Wilkins

Bank of Canada deputy governor Carolyn Wilkins. (Fred Lum/Globe and Mail/CP)

Bank of Canada senior deputy governor Carolyn Wilkins delivered a lecture in London this fall on the perils of economic life in a time of ultra-low interest rates. By making money incredibly cheap, central banks have created the perfect conditions for asset-price bubbles. Wilkins didn’t apologize—but she did offer some suggestions about what could be done to avoid future calamities: a concerted effort by governments to boost economic growth and proactive use of policies that could deflate bubbles before they pop.

Here’s another idea: Give Wilkins more high-profile speaking engagements so she inspires other women to join the realm of finance. Christine Lagarde, the managing director of the International Monetary Fund, likes to say that if Lehman Brothers had been called “Lehman Sisters,” the last eight years might not have been so miserable. “In the area of trading, it is now an academically demonstrated fact that women tend to be a little bit more risk-averse,” Lagarde told me in September. “They don’t move positions as quickly and as erratically as men. Maybe it is a bit less profitable, but I think it would have been less risky.”

Earlier this year, a trio of economists, led by Danny Cohen-Zada of Israel’s Ben-Gurion University of the Negev, released new research demonstrating this principle in action. By studying thousands of bronze-medal fights at international judo competitions, they found women less prone than men to “psychological momentum.” Judo matches pit fighters who lose the semi-final round against winners of the previous round (called a “repechage”). In the men’s matches, winners of the repechage round prevailed 70% of the time; in women’s matches, the odds remained even. In other words, male winners kept winning, and losers kept losing. The difference is likely due to testosterone levels: Men who win in competitive situations feel emboldened to try again, even as the odds of losing grow; women don’t exhibit the same tendency. Psychological momentum is an advantage on the judo mat; it can lead to problems on trading floors, however. “Sometimes momentum can create price bubbles in financial markets, because success in a first investment leads men to increase their willingness to take additional risks and reinvest,” Cohen-Zada and his co-authors write. “An increased share of women traders in the market might reduce the creation of such bubbles.”

Boys’ clubs skew finance in other ways. Women create the majority of Canada’s new businesses, yet they receive only 7% of venture capital, according to Vicki Saunders, the Toronto-based founder of SheEO, an organization that recruits wealthy women to back female entrepreneurs. Startups are the source of an economy’s dynamism because they grow faster than established enterprises. That means Canada’s economic potential is being stifled by gender bias.

None of this is necessarily conscious, which only means we must make conscious efforts to break the cycle. Generous daycare subsidies might be the smartest thing governments can do: Extensive research shows the most effective way to increase the number of women taking part in the economy is to ensure reliable, affordable child care.

Saunders, the creator of several companies in North America and Europe, would loosen restrictions on who can invest in startups. Currently, only “accredited”—in other words, wealthy—investors are permitted to back new companies, a paternalistic (and anachronistic) requirement meant to protect innocents from fraudsters. But the rule also puts an artificial limit on the pool of investment, reinforcing the male-dominated status quo and ensuring the rich get richer.

We should recognize that gender equality won’t be achieved until minds are changed. Lagarde emphasizes the importance of leadership: Prime Minister Justin Trudeau’s self-identification as a feminist is important because it will change perceptions. Change is needed. The boys have led us to a decade of economic crisis and stagnation. When Wilkins, Lagarde and Saunders are no longer anomalies, we’ll all be better off.