Andrew Haldane, the Bank of England’s executive director for financial stability, said regulators need to simplify regulation of the global banking system to include a greater reliance on market forces.
“We have a complex banking system, but it is a fatal error to argue that, as a consequence of that, we must have a complex regulatory apparatus to deal with it,” Haldane said today during a panel discussion at the Allied Social Science Associations’ annual meeting in Denver. “You don’t fight fire with fire, but rather seek robustness from simplicity.”
An international committee of regulators is attempting to overhaul bank capital and liquidity requirements because existing rules, known as Basel II, failed to protect lenders from insolvency during the financial crisis. The main elements of the overhaul were approved by leaders of the Group of 20 countries last year.
“There is ample scope to simplify,” Haldane said. One way would be to allow the “pillar of market discipline to bear a greater amount of the strain,” partly by “hardwiring it” into the capital structure of banks.
The Basel Committee on Banking Supervision, which includes regulators from Brazil, China, India, Germany, the U.K. and the U.S., agreed to increase the amount of capital banks need to hold. The change won’t go into full effect for years.
Other measures that regulators had hoped would prevent future crises, such as liquidity standards, a capital surcharge on the biggest lenders and a global resolution mechanism for failing firms, were postponed, allowing banks to escape the toughest rules that would force them to change the way they do business.
Haldane said at a conference last year that bank regulators want to stop lenders from making “miracle” returns that were an “illusion” created by taking on too much risk. He also said in a paper released last month that “colossal” global imbalances may swell and increase pressure on the world’s financial system.
Source: www.bloomberg.com
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