April 29, 2015

Who is more risky, a Systemic Important Financial Institution, or a Systemic Important One and Only Regulator?

Sir, Richard Allan, Facebook’s vice-president of public institutions in EU, complains about “having to comply with 28 independent shifting national variants” of regulations, “European discord on the internet is bad for business."

It is not that I claim to know about European regulations that affect Facebook, but, if one is able to justifiably warn about a Systemic Important Financial Institution, a SIFI, then one also has the right to warn about a Systemic Important One and Only Regulator?

And I would leave it there, were it not for Allan writing: “The biggest victims [of national regulations] would be smaller European companies. The next big thing might never see the light of day. We know from experience that getting a company off the ground is hard enough already. And if regulation at the national level is adopted, it could stop start-ups before they even get started. At a time when Europe is looking to create jobs and grow its economies, the results could be disastrous.”

And that made me mad. No national bank regulator would have dared to come up with regulations like the current risk-weighted equity requirements for banks, and that so negatively affects the fair access to bank credit of the “risky”, like the start-ups. For instance the reason for which a Greek bank needs to hold much more equity when lending to a Greek start-up, than when lending to the government of Germany, is precisely the existence of a big monstrous non-transparent and not accountable concoction as is the Basel Committee for Banking Supervision.

In short, if I was a small start-up, I would like the regulator to be small like me, and not one of those biggies who mostly go to Davos and meet with SIFIs and the likes of Facebook.