Can regulators really make markets more stable?
I found myself sceptically smiling when reading that the Financial Stability Forum is going to make the banking world safer by:
- Strengthening prudential oversight of capital, liquidity and risk management;
- Enhancing transparency and valuation;
- Changing the role and uses of credit ratings;
- Strengthening the authorities’ responsiveness to risks; and
- Ensuring there are robust arrangements for dealing with stress in the financial system.
You can read the full report of what they proposed to G7 ministers here.
Why was I smiling sceptically?
Because regulators do not make the markets safer. If anything, regulators make financial markets less safe.
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