Regulation Is Risky, Says Group Appointed by Regulated Banks
Last year, the Institute of International Finance, a trade association of global banks, place together an all-star group of bankers, hedge fund operators and former government officials to alert us all to ?systemic risk? — the kinds of risk that can sink an economy.
The merchant banker-appointed group just released its latest warning — and found that new proposals to regulate banks should be one of the global economy?s largest worries. ?Suspicions about the prospects for reform — which have been highlighted by the recent proliferation of national proposals — are thought by [the group?s] members to pose additional risks to economic recovery,? said the group headed by Jacques de Larosiere, a former administration director of the International Monetary Fund.
So which proposals are the IIF and its all-star group, formally called the Market Monitoring Group, really fretting about? The ever-cautious group didn?t name names, though in response to questions, IIF Administration Director Charles Dallara, said that the group had in mind the Obama administration?s proposal to tax banks to pay for the government rescue of the economy and the so-called Volcker rule, which would bar banks from proprietary trading. He also cited proposals by some European officials to regulate rating agencies and CDS markets.
For some time, bankers have been arguing that uncertainty about regulation is messing up the economy because beleaguered bankers don?t know what to expect out of government. That comment has generally produced scornful howls from U.S. officials, who hold responsible banks and other financial institutions for igniting the crisis that tanked the global economy.
Mr. Dallara says the IIF and its market monitors aren?t trying to slow or kill regulation. Rather, they reckon the global regulatory agenda is already overstuffed with efforts to raise capital, reduce leverage and figure out how to handle troubled financial firms. All these efforts are being discussed by the Group of 20 wealthy and developing nations with a deadline of finishing by the end of the year.
?Any extra layer of uncertainty raises a question of whether we?re serious about international coordination,? Mr. Dallara said.