Seven years after the start of the financial crisis, banking reform is still very much a work in progress. Or should that be regression? The only constant is that the burden of regulatory requirement and diktat keeps on growing. Little good does it seem to be doing either. Yet “job only half done” remains very much the prevailing narrative among politicians and regulators.
Paul Volcker, the former Federal Reserve chairman who gave his name to a new rule that limits commercial banks from using deposits for risky proprietary trading, once confided that his rule would only work if it were kept simple enough to be written on half a page.
In the event, the final version runs to 71 pages, with a further 900 of interpretation. Try making that your bedtime reading. It is even worse in Europe, where the EU is on a mission to superimpose its own particular mix of the absurd and outright destructive on already very full national reform programmes.
Underlying this growing regulatory quagmire is the belief that legislators have not yet properly got to grips with the “too big to fail” and “too complex to manage” issues. Even before the ink has dried on the last regulatory initiative, there will inevitably be another in the making. On and on it goes, like a metastasising cancer. The idea that banks "will never be entirely safe until equity capital is expanded to 30pc of lending" is as barking as any other estimate. Neither she, nor I, nor you, nor anyone else can predict the future and while 30% provides a better buffer than 29% or 28% it is not as 'safe' as 31% or 32%. Striving for a mythical 'safety' level is strictly for vote catching.
Given that 450+ US retail banks failed after 2008 it is not clear Why anyone still thinks they are not the casinos? While politicians still imagine that retail banks are safe but investment banks are unsafe they will not be able to understand the numbers and make the right decisions, however unpopular those are bound to be with their voting fodder.
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