Thursday, 9 January 2014

Too big to fail?

Spotted here:

Some of the UK's largest regulators could face more onerous oversight requirements after citizens and market participants unveiled proposals to subject regulatory giants to greater scrutiny.

The regulators requiring the most immediate action, the Financial Stability Board (FSB) and the International Organisation of Securities Commissions (IOSCO), and the aptly named Financial Catastrophe Authority (FCA) are now being required to  compile a list of their regulations, the implementation of which would cause, as they did before, another Lehman-style event.

Regulators and other unaccountable quangos with more than two employees (a man and a dog would count as two employees) would be considered 'systemically important financial institutions' (SIFIs), under the plans suggested by everyone in the country in a consultation paper published this week.

In the paper the it is pointed out that the FSB among other institutions, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity if they were to again cause failure in a disorderly manner.

For eaxmple the efforts of the FSB on SIFIs within the banking sector has already seen more onerous capital requirements levied upon such institutions via Basel III regulations (raising the prospect of more regulatory opportunity in requiring more stringent - and likely entirely pointless and counter productive requirements for asset managers), distorting market led capital requirements and leading banks to hold more potentially worthless assets like Sovereign Bonds.

The country has identified that the FSB must fall within the scope of the oversight: encompassing either regulators, quangos and central banks or all of them, collectively.

Those regulators and quangos reporting more directly to governemnt, like the Bank of England  would not escape assessment, since:-
"Printing money and buying up all sorts of debt, especially government debt, can have serious systemic consequences, even if its parent institution - government say -  was already assessed, as central bank balance sheets are usually not consolidated with the governmentts financial statements."

Mark Carney (pictured), chairman of the Bank of England, said: "Today's proposals are an essential first step towards addressing the risks to global financial stability and economic stability posed by the disorderly failure of financial institutions (other than banks and insurers) like the Financial Shambles Authority and the one of which I am in charge - the Bank of England. This is integral to solving the problem of financial regulators and quangos that even though they can fail, are never seen to suffer the consequences - this is about making all regulators and quangos fully accountable to the public that pay for them and the fat salaries of people like me."