Mifid 2 could be creating dangerous risks promoting Systemic Important Research Institutions

Sir I refer to Laura Noonan’s “Deadline looms for banks to get their research arms in order” November 17.

We read “European rules, known as Mifid 2, will reshape the way analysts report on companies and how the research can be priced and circulated to investors… going from quantity to quality… banks to become more selective in the sectors they deal within an environment where clients will no longer support the 60-70 research teams that cover each major European industry… number of analysts publishing Emea research for the 12 top banks fell 17 per cent from 2007 to 2014.”

What are these busybody regulators doing? Don’t they understand what systemic risk is all about? And now they are pushing for Systemic Important Research Institutions, SIRIs.

Don’t they understand that going from quantity to quality often just entails going from the open market into even less transparent small mutual admiration clubs? Did they not learn about the systemic risks of giving information power to few like when they gave it to the credit rating agencies?

Quality? Quality is a result of the diversity that includes many “un-qualified” players but who could suddenly bring forward fresh perspectives, or be making those insolent questions required for having a chance at sustainable quality.

Did they not do enough damage to financial research when they subordinated the importance for banks of getting the risk premiums right, to getting the equity required low?

The more I read about what arrogant and hubristic regulators are up to, the more I feel we have to put faith in shadow organizations to be able to help our grandchildren to a livable future.

@PerKurowski ©

But bad information was leveraged even more, sort of a million to one

Sir, John Plender writes in Capital in convulsion about “toxic assets” and that “allowing investment banks to be leveraged to the tune of 30:1 is like Russian roulette with five out of the six chambers loaded”, September 20. Yes, but let us not ignore that most of the toxicity has less to do with the assets as such and more with the lack of understanding of them; and that it was the financial regulators that leveraged, sort of a million to one, the impact of bad information flows, and effectively turned the credit rating agencies into single chambered guns loaded with nuclear devices.

Competitive financial markets and risk information cartels do not go hand in hand

As global public goods go credit ratings have certainly not proven their worth. Alan Greenspan, the former chairman of the US Federal Reserve, now has the galls to tell us “The world must repel calls to contain competitive markets” August 5, after having been absolutely silent while the credit rating agencies, empowered by the financial regulators as risk information cartels, imposed their opinions on the markets in clearly uncompetitive ways. Why do not regulators, like soldiers, just fade away?