Basel III is on its way and I’m sure there are a large number of bureaucrats and auditors contemplating a new set of regulatory framework they are sure will avoid another financial crisis like this.
But was that not what Basel II, Sarbanes-Oxley Act, Fair Value and Hedge Accounting should do? Why did they fail? And might it be the fact that some of them increased the speed and severity of the crisis? What effect did Fair Value have when it forces the banks to give fire-sale values to assets with no market price? How did Hedge Accounting increase the transparency so we could see the crisis coming? How did the bankers manipulate the Basel II to be able to leverage the capital base even more?
Maybe we shall consider not regulating the financial institutions and corporate sector but instead the private sector? Consider France where loan excesses have almost been avoided because you have severe restrictions of how you can mortgage your house – you cannot take out extra mortgage to fund a car for instance. All mortgage needs to go into refurbishments only. This automatically governs how the banks and corporates behave too.
But please let us see some more common sense regulations this time. I do not think that we can avoid blaming especially the Fair Value principles and Basel II for making the crisis much more severe than necessary.
0 comments:
Post a Comment