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Financial Regulation Goes Global

Financial Regulation Goes Global

29 Dec 2010
0 Comment
Toby Baxendale
Dalibor Rohac, Matthew Sinclair, Regulation

Dalibor Roháč of the Legatum Institute and Matthew Sinclair of the Taxpayers’ Alliance have jointly authored a report on the risks of new global financial regulations:

Around the world politicians and officials are advancing major new regulations of the financial services industry. Those regulations are a response to a major financial crisis, but real care needs to be taken to ensure that they help avoid future crises, and won’t precipitate or exacerbate crises instead.
…

  • The increased internationalisation of financial regulation risks amplifying future global booms and busts. Global regulations lead to global crises as organisations are encouraged to hold similar assets and respond in similar ways when things go wrong. As a result, the new regulation could increase the systemic risk to the world economy.
  • Attempts to focus regulation on the institutions that contribute the most to systemic risk carry their own risks. If institutions understand that they are seen as “too big to fail” then that will encourage excessive risk taking.
  • Despite attempts to address the issue, the Basel regulations may still be procyclical, imposing more onerous requirements on institutions at times when the system is in trouble.
  • Some measures proposed, like attacks on tax havens and hedge funds, are motivated by other agendas and do not actually address the problems that led to the financial crisis.
  • There is an important debate over whether or not effective “macro-prudential” regulatory policy is possible. However, the policies introduced since the financial crisis do not live up to that standard. Some of the measures announced are disingenuous political posturing while others continue existing mistakes partly responsible for the problems we are facing today. It is entirely possible that the new regulations being implemented could hurt established financial centres like the City of London while increasing the frequency and strength of global financial crises.

Download the full report (PDF).

The Taxpayers’ Alliance announcement is here:

  • New financial regulations could tip global banking sector into new crisis
About the Author
“Toby Baxendale is an entrepreneur who built up, amongst other things, the UK's largest fresh fish supplier to the Food Service sector, see www.directseafoods.co.uk, and recently sold it. Toby is dedicated to furthering the teaching of the Austrian school of economics. He established and funded the 1st Distinguished Hayek Visiting Teaching Fellowship Program at the LSE in Honour of the Nobel Laureate F A Hayek. Toby is Chairman of The Cobden Centre. Richard Cobden's timeless principles of the abolition of legal privilege of the few at the expense of the many are worthy in this day and age to promote.

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