The Emerging Unaticipated Costs of Re-regulation
With the fundamental elements of post-crisis global financial regulatory reform in place, financial markets and market participants are beginning to experience more fully just how heightened capital requirements and leverage and liquidity restrictions are affecting their operations, business models, and products. While global financial markets are safer and global banks are more stable as a result of these reforms, it is becoming clear that the benefits of these regulatory solutions are not without significant costs. Some of the more obvious costs of bank capital reform were fairly easy to anticipate; and the cost-benefit models employed by the Bank for International Settlements (BIS), Financial Stability Board (FSB), IOSCO, and their teams of academics and economists astutely captured and factored those costs into their considerations. We are now beginning to see, however, that by employing a one-size-fits-all and overly macro approach to their cost-benefit modeling, these experts may have been too focused on the forest and missed the trees. In an article in the forthcoming September issue of the RMA Journal, CSFME’s Executive Director Ed Blount examines how regulators’ reliance on models that failed to account for the complexity of global finance may have unleashed forces more damaging than those their regulatory reforms were targeted to prevent.