Hard to believe - we learned today that
the EU is troubled by new Fed rules for foreign banks operating in the U.S.
Michel Barnier, one of those innumerable European commissioners nobody really keeps track of, is worried. He's fretting about the
potential impact on the global level playing field since we must always
ensure competition on an equal footing.
Where's the substance??!!
Why isn't M. Barnier making the strongest case he possibly can that European banks have plenty of capital now?! Prove - or at least argue - that the banks on his side of the Atlantic are highly immune to insolvency risk and that they no longer have assets much longer in maturity than their liabilities. In other words, make the argument that your banks are strong and NOT just that you want regulation to be "fair!"
These concepts of "fairness" and "level playing field" are not new! Putting such amorphous and non-essential concerns ahead of true substantive analysis of banking risk is one of the many enablers of the disarray of the past 7 years.
See here
the text of a conference presentation we made in Sydney in 2001. Here's an excerpt:
"Why are the BIS rules so bad?
Well, the portfolio credit risk puzzle is quite difficult.
More importantly, BIS regulation is unavoidably a political
process. That means the end result
must be simple and comprehensible to all, everybody - worldwide! - must agree,
and all banks and countries must be treated “fairly” (where “fairness” is
generally in the eye of the allegedly offended). That can’t work.
We end up with rules that are wrong but for which there is universal
agreement."
(If we had it to do over again, we'd certainly leave out the idea that rating agencies could do a better job than the BIS. Live and learn!)
