Is Basel Faulty? Bank Regulation Is Still Built on Shaky Foundations

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Macroprudential Matters 17/12/2021

Macroprudential Matters

"(...) In the wake of the 2008-2009 financial crisis, financial institutions in general, and banks in particular, have faced a heightened regulatory scrutiny, a more muscular and intrusive style of supervision, and substantially more onerous capital and liquidity requirements. Some institutional changes, such as the enhanced role given to Central Clearing Counterparties, have revolutionized the environment in which important financial contracts are executed. Whilst this is not the place to discuss whether the implementation of these measures has been effected in the most effective way, there is broad agreement, however, that, as a result of these changes, the financial world is less prone to a repeat of the sort of cataclysmic events that characterized the months after the Lehman’s demise. Pragmatically useful as these reforms have been, one cannot help feeling that a great regulatory opportunity has been missed. Arguably, the once-in-a-century nature of the 2008-2009 events should have called for a root-and-branch rethinking of how financial regulation is conceived in the Western economies. Understandably however, the urgencies of the moment also called for immediate action. The result has been a patchwork of reforms that have been applied to a regulatory substratum ill-suited to receive them. (...)" 

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Is Basel Faulty? Bank Regulation Is Still Built on Shaky Foundations, Macroprudential Matters, 17/12/2021