TURNING and turning in the widening gyre The falcon cannot hear the falconer; Things fall apart; the centre cannot hold; Mere anarchy is loosed upon the world, The blood-dimmed tide is loosed, (from William Butler Yeats’ The Second Coming (1919)) Sometime in the late 1980s bank executives discovered that their institutions should be “high...
This morning the British Independent Banking Commission (ICB) released its long-awaited Final Report. Given the clear direction signalled by the ICB in its Issues Paper: Call for Evidence released a year ago, the recommendations in the report had already been anticipated for months. The British Government has accepted the report, at least in principle....
The idea that regulators can be captured by the industries they regulate, or even by other interest groups, is central to modern regulatory analysis. It is the foundation for the theory of regulatory failure, which itself is a response to the idea that regulation is necessary to counteract market failure. Many believe that the...
Today the Financial Crisis Inquiry Commission released its long-awaited report ( The Financial Crisis Inquiry Report: Financial Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States). The Report of the ten-member, bipartisan Commission, consists of the official report adopted by a majority (six) of the...
Our largest banks failed to build cushions to absorb losses even while knowing back in 2007 that the music would soon stop playing and (to mix a metaphor) the debt-fueled asset bubble would burst. As it happened, externalizing their losses worked out well for the bankers, but not for the rest of us. It...
At the Buttonwood Conference sponsored in New York by the Economist, Governor of the Bank of England Mervyn King just gave an elegant and candid speech in which he noted that policymakers might even have to look at splitting up the very large banks–an approach many observers, including me, believe is essential for managing...
Guest post by Maciej Borowicz. This is the final part in a three-part series. Here are Parts 1 and 2. What do the regulators make of that? In the US, October is the month when the SEC and the CFTC begin finalizing rules on OTC derivatives in accordance with the Frank-Dodd act. In the...
Guest post by Maciej Borowicz. Part 1 is here. Notwithstanding the criticism of the use of the regulatory capture metaphor made in the first part of this post, this metaphor is not to be seen as being entirely unavailing. I would propose an alternative formulation of the capture approach: capture exits when the poachers...
There is much positive publicity about the new rules agreed upon at the Basel Committee. And there is no doubt that on their face they are much stricter than the old ones, requiring banks to double their level of real core capital and add a buffer of 2.5%. This means that, while banks could...
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