Financial Regulation


“The consequences of the 2007 implosion in credit markets will serve as a catalyst to break the thin ice on which democracies and its leaders have operated for decades. With hardly any understanding of the implied systemic risks when allowing the financial services industry to prosper off-balance sheet in leverage-enhancing derivate products – despite the many warning signs during at least the past ten years – political leaders more so than bankers should be held to account. Simply more regulation – democracies’ typical mantra – cannot be the right answer, though.” (pp. 38-39)

“The Sarbanes-Oxley legislation in the US, for example, emotionally and hastily enacted to enhance corporate transparency after the collapse of US energy company Enron, has demonstrated the limitations as well as high cost of any corporate and financial regulation that goes beyond the self-regulatory enforcement of sound principles. The credit crisis will rightly assault democracies’ existing form and shape of capital markets governance. But any solution resulting from Western democracies’ existing political processes is likely to be inadequate in the short-term and counterproductive in the long-run.” (p.39)

“Financial regulation should follow the governance model of monetary policy. Most democracies have successfully de-politicized monetary policy by constitutionally protecting the independence of central banks in their mandate to pursue constitutionally set objectives. While some politicians…would like to dilute that independence, the short history of central bank independence suggests that the electorate is best served when economic stewardship is not only insulated from politicians and politics, but governed by objectives and principles that are benchmarked against quantifiable measures.” (p.39)

“Financial market regulation should be equally protected by a ‘non-political’, independent and unified authority that is driven by a principles-based regulatory approach. So far, the United Kingdom’s Financial Services Authority is as good as it gets. But it still lacks sufficient independent powers.” (p.39)

“Today, the world’s emotional deprecation of the financial services sector, unleashed by a self-inflicted crisis, embeds the danger of a serious mental setback. “ (p. 80)