A regulatory bias that favours the big prevails
Sir Clive Crook recommends to “Strike faster on death-wish finance” March 23 and he is right though that would clearly require a dramatic reversal of the regulatory bias in favour of the big that now prevails.
In May 2003, at a workshop on risk management for some hundreds of financial regulators held at the World Bank, as an executive director, I said the following:
“A regulation that regulates less, but is more active and trigger-happy, and treats a bank failure as something normal, as it should be, could be a much more effective regulation. The avoidance of a crisis, by any means, might strangely lead us to the one and only bank, therefore setting us up for the mother of all moral hazards—just to proceed later to the mother of all bank crises. Knowing that “the larger they are, the harder they fall”, if I were regulator, I would be thinking about a progressive tax on size.”
And, as you might guess, that recommendation went unheeded and I would even dare say unwelcomed… unfortunately.
In May 2003, at a workshop on risk management for some hundreds of financial regulators held at the World Bank, as an executive director, I said the following:
“A regulation that regulates less, but is more active and trigger-happy, and treats a bank failure as something normal, as it should be, could be a much more effective regulation. The avoidance of a crisis, by any means, might strangely lead us to the one and only bank, therefore setting us up for the mother of all moral hazards—just to proceed later to the mother of all bank crises. Knowing that “the larger they are, the harder they fall”, if I were regulator, I would be thinking about a progressive tax on size.”
And, as you might guess, that recommendation went unheeded and I would even dare say unwelcomed… unfortunately.
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