LONDON (MNI) – Bank of England Executive Director for Financial
Stability and member of the Financial Policy Committee Andrew Haldane
has called for new banking regulations to be “grounded in simplicity”,
adding that simpler regulation may be more effective at tackling issues
of robustness in the banking sector.
“Modern finance is complex, perhaps too complex … As you do not
fight fire with fire, you do not fight complexity with complexity.
Because complexity generates uncertainty, not risk, it requires a
regulatory response grounded in simplicity, not complexity,” Haldane
told an audience at the Federal Reserve Bank of Kansas City’s 36th
economic policy symposium in Jackson Hole, Wyoming.
“That would require … an about-turn from the regulatory community
from the path followed for the better part of the past 50 years. But
when it comes to financial regulation … less may be more,” he added.
Haldane also suggested that the Basel framework could take “a more
sceptical view of the role and robustness of internal risk models in the
regulatory framework … simplified, standardised approaches to
measuring credit and market risk, on a broad asset class basis, could be
Haldane also made the case for leverage ratios to be placed on an
equal footing with capital ratios, an approach taken by the Bank of
England’s Financial Policy Committee.
Turning to supervision, Haldane also urged a more judgement-based
approach rather than a rules-focussed one. Such an approach would
“underpin the Bank of England’s new supervisory model when it assumes
prudential regulatory responsibilities next year”.
For this to be effective, more experienced regulators will be
needed, working to a smaller, less detailed rulebook. Greater simplicity
and consistency in disclosure practices could also strengthen market
discipline, Haldane says.
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