OK, there’s no real debate that the Financial Times’ banking editor is much smarter than I am, but that doesn’t mean he doesn’t have insane ideas and his column today (Banks Need A Holiday Away From Basel) proves that point.
While making some interesting and some valid points, he proposes that we suspend the Basel capital rules and most of the other financial reforms put in place since the catastrophic financial crisis. What does he propose we do in their place? Bank self-regulation. I’m not kidding. His proposal is to let banks do what they did in the decade before the crisis: regulate themselves, which many at the time believed would be the best regulation of all.
But, we now know for a fact that so-called bank self-regulation means no regulation at all. It results in banker wilding: engaging in self-destructive, reckless if not illegal conduct, the costs for which they didn’t pay. The shifted the losses for their unconscionable conduct to taxpayers and public treasuries throughout the world, all of which are still suffering severely. The bankers suffered a little short term pain, but returned to giving themselves huge bonuses very quickly and adopted a posture of poor, picked-on victim even quicker.
Even worse, generous no-strings government policies enabled them to recapitalized their balance sheets quickly and, rather than using that to fund economic growth and jobs, they devoted large amounts to PR spin-meisters, lawyers, lobbyists and campaign contributions to obstruct, gut, delay and defeat even modest reforms designed to prevent a repeat of the financial debacle.
Return to banker self-regulation? No thanks. Taxpayers and public treasuries throughout the world simply can’t afford that.