20 May 2010

Steven I. Davis - Effective Bank Regulation and Supervision: Lessons from the Financial Crisis

(New book) A unique insider view of what actually works, what ought to work, what prevents it from working, and what needs to be done about it – industry experts who have to implement and work within regulatory systems give the real best practice picture

Recent  press  articles on the emerging debate over global bank taxation open a new phase of the ‘bash the bankers’ theme. Why have regulators and bankers in markets as disparate as France, Canada, Australia and India criticized the IMF’s proposals for incremental bank tax as the means to prevent the next banking crisis? One answer is that these markets have survived the recent crisis with minimal damage - in large part because of pro-active regulatory action.

 

 It is impossible for ordinary mortals to predict either the cause or the outcome of the next banking crisis. But evidence from our recent research into the regulatory lessons of the 2007-8  banking crisis seems to confirm that such proactive steps in line with Basel  2’s Pillar 2 have substantially mitigated the damage in markets like France, Italy, Spain, Canada, Norway and Australia, where we interviewed senior regulators for the lessons of their relative success in macro-prudential regulation. In contrast, the US and UK – sadly the two major international banking sectors – regulation for various reasons was relatively ineffective.

 

Will the proposed taxation prevent future banking crises? We don’t know, but we do know that creative bankers will find a way to subvert almost any similar measure. And unless the IMF can silence the deeply felt views of those national regulators who oppose a global tax, it is highly likely that the level playing field needed for its effective execution will not exist. Effective regulation is not a panacea, but the lessons of best practice deserve more attention than headline-grabbing cosmic solutions.

 

·         Read the newly-published  book, Effective Bank Regulation and Supervision, based on over 30 off-the-record interviews with senior bankers, regulators, consultants and analysts across the world,  by Steven I. Davis and published by Searching Finance Limited. order or contact: enquiries@searchingfinance.co +44 (0) 7885 441682