January 21, 2010

International coordination is not necessarily good coordination

Sir Gillian Tett writes “during the past few months, dozens of faceless bankers and bureaucrats have been scurrying around, in joint international committees, trying to hammer out regulatory solutions to matters such as bank structure, capital charges or derivatives regulation. And as they have done this dull, complex work, their guiding mantra has been the need to act in a coordinated fashion”, “Pitchforks take on Terminators”, January 21.

But the world does not need dozens of faceless bankers and bureaucrats hammering out dull and complex regulatory solutions in closed smokeless rooms. That is exactly why they can concoct such utterly silly ideas like allowing banks to hold only 1.6 percent in equity just because a credit rating agency opines someone is worthy an AAA rating, and by this effectively authorize 62.5 to 1 bank leverage.

If it is this kind of international coordination that might be endangered by the politicians, then this can only be a welcomed evolution. Just let us make sure the pitchforks go after the Basel Committee, the producers of the financial “Terminators”.