Regulatory Complexity and Uncertainty

This post was written by Stephen Kinsella

Vincent O’Sullivan and I write on this topic, applied to the case of the Capital Requirements Directive IV, on the Harvard Law School Forum on Corporate Governance and Financial Regulation here. A related talk I gave at the IIEA is here.

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17 Responses to “Regulatory Complexity and Uncertainty”

  1. David O'Donnell Says:

    I’ve linked to this site a few times on this blog.

    Well done!

    p.s.

    I’ve recently resigned from commenting on Irish Governance:

    Governance pre_crash = Governance post_crash

    statsig *********

  2. The Dork of Cork Says:

    How can you study Ireland ?

    From a Money perspective it does not exist.

    Its merely a conduit , nothing comes out from it , the only base money it produces seems to just pay off credit deposits on Bust banks which takes more money out.

    When globalisation broke down in 1914 the clearing banks ran on the BoE !!! (Keynes) becuse they feared their customers were saving sovergins which they were.

    What did they do ?
    The UK Treasuary issued money directly into the domestic system(10 shilling & £1 notes) which was acceptable in Ireland & Scotland.
    The local system needs more base money.
    The Euro boys don’t produce treasuary paper - they are only concerned with collateral.

    F%$k collateral , the first thing you need is enough medium of exchange.
    We need pure Fiat to facilitate commerce and start the flow again.
    The Euro club will only do this under a dictatorship , that is not acceptable.
    We need to renationalise the countries money system immediately.

    PS .Regulation is simple under a national money system … its only about the RATIO of base money to credit.
    Everything else is noise.
    After 1987 & Alan Dukes famous suburban strategy it went from 8 to 1 ……. to 40 to 1 + or something.

  3. David O'Donnell Says:

    Just thought I’d check in and peruse the debate ….

    As with a few relevant posts by Colin Scott …. there appears to be little interest in Ireland in the areas of Regulation, Corporate Governance in the Financial and State Sectors, issues related to Accountability and Responsibility etc

    Empirics would therefore suggest that there is no need for such stuff wrt to the Irish upper-echelon fraternity …. when anything is even remotely perceived to be somewhat awry (such as bankrupting a state or trousering a few million here or there or paying the grocery bills for the odd politico) the key players simply glide out on Triple_A rated golden parachutes with letters of comfort for the rest of their lives and solidly backed up by a phalanx of golden eagles(the non-extinct variety who always do the bill_able hours to the state and the spalpeens) … to serve on other boards, little 100,000K a year nixers, handy EU sinecures, or to become ‘experts’ on what passes for serious broadcasting ….. and to cozy to Marian or Pat or Miriam in discussing the trials and tribulations of fagging in Gonzaga or bearing the genes of a long lost patriot in former times, or the stress and anxiety of running three households and probems with finding reliable servants …. Oh Tis a hard life alroight …..

  4. David O'Donnell Says:

    @Paul Hunt

    There are times Paul when you make perfect sense …

    And times where you spout nonsense … (the left (-;

    You must be human. Appreciate the nod to me work on Goliath … Blind Biddy is stitching up another sling-shot …. reinforced with the best Higgs-bosun twine available ….

  5. grumpy Says:

    It is difficult to know whether to even bother to quote Mandy Rice Davies having read this bit. It could have been written by Jamie Dimon:

    “Regulation is the most important factor influencing strategic change at financial institutions and is the second largest threat – after economic uncertainty – to growth prospects, according to PwC’s Annual Global CEO Survey [1]. The survey, which is in its fifteenth consecutive year, canvassed CEOs at over 250 financial institutions in 42 countries late last year and provides a good barometer on market sentiment. The significance of regulation as a change driver in the financial sector has grown steadily since the recent crisis. Based on PwC’s face-to-face interviews with CEOs of some of the world’s largest financial institutions, it is clear, though, that it is not simply regulatory change, but regulatory complexity and uncertainty that are really dampening confidence in growth.”

    “provides a good barometer on market sentiment” That seems to be a very narrow universe of ‘market participants’. What would that survey indicate “market sentiment” was towards the proposition that many banks in Europe are failed institutions propped up by rampant official market distortion? That is a common sentiment in the market that matters.

  6. Jesper Says:

    This part:
    “The power would be exercised when an institution triggers the conditions (not yet specified) for entering into resolution.”

    Suppose that losses are minimised if banks in distress are resolved sooner rather than later, what should the conditions be for putting a bank into a resolution regime?
    What, if any, penalties should apply to executives that fail to disclose that their bank should enter into a resolution regime?
    Would it good to have laws that make people who sign off on their banks solvency face some consequences if it turned out they were wrong?

  7. David O'Donnell Says:

    Europe Raises Threat Level against Athens

    Officially, euro zone governments say they’re not talking about a Greek exit from the euro zone. But it’s a different story behind closed doors. Finance ministers meeting in Brussels last Monday threatened to evict Greece, SPIEGEL has learned. Meanwhile, Germany denied reports that Chancellor Angela Merkel called for Greece to hold a referendum on the euro.

    Despite official claims to the contrary, the governments of the euro zone are threatening to kick Greece out of the currency union. At a meeting of euro-zone finance ministers last Monday in Brussels, it was made clear to Greek Finance Minister Filippos Sachinidis just how serious the situation had become.

    “If we now held a secret vote about Greece staying in the euro zone,” Euro Group Chairman Jean-Claude Juncker warned his Greek colleague, “there would be an overwhelming majority against it.” Other participants in the meeting also had harsh words for Sachinidis, with particularly strong criticism towards Athens coming from Portugal and Ireland, countries that have also accepted bailouts in the crisis.

    http://www.spiegel.de/international/europe/europe-raises-threat-level-against-athens-a-834188.html

    CONFIRMED: MINISTER NOONAN PUT THE BOOT INTO GREEKS

  8. PR Guy Says:

    “Uncertainty”

    Now there’s a great word. I’m uncertain as to why JPMorgan are only losing 2bn. I’m uncertain of how many billions left Spain rather rapidly today (and to a lesser extent, Italy). Nothing is certain eh?

    On the regulatory side, I heard someone very very senior today shouting that with all these regulatory projects such as SII, RDR, FATCA, etc. etc. soaking up every spare resource he had, he couldn’t run a business that was supposed to be creating new products and flogging more of the existing ones. There was no capacity left to undertake actual business projects. He was jolly well upset I can tell you. I haven’t seen a rant like that in ages. The minions were in great fear and wide-eyed I can tell you. It does them good to see a CEO flash his teeth now and again.

  9. David O'Donnell Says:

    Back to EU level

    A European growth pact and deeper political integration in the euro zone could bolster the currency union, but there must be no softening of the bloc’s fiscal pact on budget discipline, ECB policymaker Joerg Asmussen said today. [....]

    ‘He pointed to the need for a homogeneous Europe-wide financial regulation framework and a joint financial market watchdog for financial institutions operating across borders, as well as a bank resolution mechanism.To bolster fiscal unity in the euro area, Mr Asmussen suggested launching a special fund from the EU budget and potentially a financial transaction tax - currently under discussion - which would also strengthen the European Parliament.

    http://www.irishtimes.com/newspaper/breaking/2012/0521/breaking47.html

    @Colin Scott

    Finally, Whither Regulation Locally … ????

    Response: Blind Biddy has a posse with bazookas who could take on an ENFORCEMENT Contract. A medium term lease on Mullingar Army Barracks would also come in useful …. could tae, watery stirrabout and mouldy bread optional …. CERTAINTY AND CONFIDENCE AND INVESTEMENT WOULD SHURELY ENSUE.

  10. David O'Donnell Says:

    @Must Read

    A pathway to sound economic thinking
    Robert A. Johnson, Executive Director, Institute for New Economic Thinking (INET)

    Our flawed financial regulatory system contributes to bad policy choices in the real economy. The aversion to debt restructuring, in part because of the fear of unleashing a financial contagion in our opaque regulatory system, leads officials to resort to the dead-end policies of austerity. But austerity will not bring us out of this mess. You cannot cut your way to growth and solvency while in a slump. But the traditional Keynesian approaches of just spending money to get the economy back to full employment aren’t appropriate either, because in addition to stimulus you are incurring debt that will have to be serviced over the long term. Investment, even during times of demand shortfall, must still be chosen to enhance productivity. Otherwise the long-term debt burden will be unsustainable and crisis will merely be delayed. [...]

    The failure of these old approaches to financial structure and regulation, and dead-end approaches to debt and demand management speak to the need to create a more integrated and relevant economics that places real human beings and real institutions at its centre, not the narrowly defined, misleading, and simplistic abstractions, that are unconsciously embodied in the logic of mechanical finance. These visions of conventional wisdom, pretending to be scientifically valid, ignore the broader costs borne by humanity, and the pain is only revealed when it emerges as rage, violence, social uprising, and other reflections of the malfunction of our political economy.

    DO READ ON …

    http://www.oecdobserver.org/news/fullstory.php/aid/3763

  11. Brian Woods Snr Says:

    @ DO’D: I cut this quote.

    “We need new economic thinking, however unsettling that might be. ”

    That’s revolution in anyone’s language. The current paradigm (Permagrowth) will persist until it collapses. But many folk will be impoverished, maimed or dead by then.

    I wish INET luck.

  12. The Alchemist Says:

    Charles Ferguson of Inside Job fame makes pertinent observations on conflicts of interests.

    I wonder could if Ireland was put under the same lens what would show up?

    So many policy areas in ireland seem immune to falsification let alone counter critique, I often wonder how the collective elites can ever develop a mature intellectual culture.

  13. Brian Woods Snr Says:

    @ The Alchemist: “I often wonder how the collective elites can ever develop a mature intellectual culture.”

    Wonder no longer: its known as Mental Reservation.

  14. PR Guy Says:

    Regulators…… they stated yesterday that they are pushing for speedy resolution vis those who cannot pay their mortgages instead of ongoing forbearance. I note though - even though mention of the new insolvency laws was brought in - they were still talking about the the person holding the mortgage paying the shortfall once the house was sold from under them and they were evicted. The banks are fighting tooth and nail to ensure that mortgage debt is not covered in the new insolvency laws and that people will be chased to their graves for that shortfall. Even trying to get some kind of veto over who can be put forward for the new insolvency regime and who can’t…….

    ……. remind me, who’s in charge around here?

  15. Michael Hennigan - Finfacts Says:

    @ The Alchemist

    We don’t really recognise conflict of interest in Ireland.

    Look no further than RTÉ: board members pitch for work and the official line is that of course the producers wouldn’t be influenced by the fact that a former colleague or board member is seeking a dig-out!

    It’s clear that even with tenure, academics are more comfortable analysing problems that are at some distance.

    So why be surprised if economists steer clear of the issue of reform in their own backyards.

    @ David O’Donnell

    New thinking — maybe but wonder whose name would cross Robert Johnson’s mind if a researcher presented a paper on the iniquties of hedge fund managers?

  16. Colm Brazel Says:

    Listening to the podcast right now while doing something else, but looking forward to it.

    The Basil 111 paper draft due July 4 I look forward to. How Basil 111 will function Jan 2013 is a new deal entirely. The Harvard summary doesn’t have much to say re topic I’ve interest in, the shadow banking sector. I would comment re unfolding crisis there may be opportunity for a two pronged onslaught on the worst excesses of the debt crisis; 1. necessity for default and debt writedown especially in a national sovereign context; 2. new regulatory rinsings washing out the bad sludge from the financial services sector. But we’ll see.

    A critique of the regulatory framework is worth while….Re complexity, its often used as an excuse not to investigate and litigate. Forget about complexity. Keep it simple. Show us simple regulation. For IBRC, give me 2 detectives and one loan and let me track back how the money was got and we’ll have a conviction in 2 weeks? When we get simplicity, we can move on to complexity. Its often surprising how simplicity masquerades as the complex; though the opposite is less true.

    Re your talk. It would be more helpful if you led your talk with a short series of points, then went on to lay out the evidence/argument/views on each. Its far too wide ranging with too few handles as you explore its difficulties and complexity. Note its a failure of regulation if complexity makes it ineffective and useless :-)

  17. David O'Donnell Says:

    @Michael Hennigan

    ? Blind Biddy perhaps? Gowan - gizza clue.

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