The bankruptcy of the finance sector regulations
Sir Martin Wolf lists a quite comprehensive “Seven habits that finance regulators must acquire” May 7, though I missed two things.
The first is a definition of what we should have the right to expect from the regulated financial sector since hopefully it must be something more than just for it to avoid defaults. And how can you regulate without an objective?
Second, when Wolf mentions that “Capital requirements must be the same across the entire financial system, against any given class of risk”, this is way too important to leave at that, since it signifies that the fundament basis for all current Basel regulations, namely minimum capital requirements allocated on the basis of risk of default alone, has proven to be a bankrupt concept; with in this case “bankruptcy” being an unusually appropriate term.
By tinkering with risk and forcing upon the markets the “opinions” of the credit rating agencies overall societal risk has only increased and this has to change. Basel, do not go forward to Basel II or III, go back to the drawing board altogether!
The first is a definition of what we should have the right to expect from the regulated financial sector since hopefully it must be something more than just for it to avoid defaults. And how can you regulate without an objective?
Second, when Wolf mentions that “Capital requirements must be the same across the entire financial system, against any given class of risk”, this is way too important to leave at that, since it signifies that the fundament basis for all current Basel regulations, namely minimum capital requirements allocated on the basis of risk of default alone, has proven to be a bankrupt concept; with in this case “bankruptcy” being an unusually appropriate term.
By tinkering with risk and forcing upon the markets the “opinions” of the credit rating agencies overall societal risk has only increased and this has to change. Basel, do not go forward to Basel II or III, go back to the drawing board altogether!
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