Wednesday, 12 September 2012

John Kay and bank regulation.

I like this cynical take on Basle regulators. It’s a couple of paragraphs (abbreviated by me) from John Kay’s article in today’s Financial Times.

“At the recent Jackson Hole conference Andrew Haldane reminded policy makers of a central truth. The capital ratios calculated according to the Basle Committee on Banking Supervisions had no value in predicting the probability that a bank would fail. But a simple measure of the bank’s leverage, which anyone with a calculator could compute did. The world’s financial policy makers nodded in admiration of Mr Haldane’s analysis. Then they continued as before, congratulating the Basle Committee on its excellent work. To expect otherwise would be to miss the point of these conclaves. Their purpose is not to discover the root causes of instability. Their purpose is to give politicians and the public a sense that “something is being done”. Few processes meet this requirement for irrelevant busyness as well as meetings of the Basle Committee.”


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