February 14, 2013
Sir, in “Europe must reset bank rules to restore faith”, February 14, Sony Kapoor writes “Five years into the crisis and it is still not clear where EU financial regulations are heading” and that “EU needs to reset its approach to financial reform” and suggesting “launching a high-powered public inquiry [to] help hold public officials and bankers to account so that public trust can restore”.
Good luck with that! I have over a number of years, starting even before the crisis, in perhaps a hundred of venues, asked regulators some simple questions they refuse to answer. That they do because doing so would reveal the monstrous regulatory mistake they made when, thinking themselves able to be the risk managers of the world they created, especially in Basel II, their capital requirements for banks based on perceived risks, which is completely against common sense.
The reform process is indeed paralyzed, especially when they now even begin to understand that their new concoction in Basel III, liquidity requirements also based on perceived risk, can only make things so much worse.
What to do? Our best chance is finding a daring political leader that can pull out with force an answer from the regulators; the other possibility is that a courageous important regulator or ex-regulator, like for instance Mario Draghi steps forward with a strong mea culpa. Fat chance!
As just one example of the unanswered question here is a link to a post in the IMF blog from August 2010.