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the summer is over – financial regulation just gets more complex September 13, 2012

Posted by Bradley in : financial regulation , trackback

More complex in terms of figuring out the costs of failures of financial regulation. Better Markets says the financial and economic crisis cost more than $12.8 trillion in GDP loss and GDP loss avoided because of emergency spending and actions by the Federal Reserve Board. And there’s more:

Then there are the enormous unquantifiable costs from the economic wreckage Wall Street caused from one end of our country to the other. For example, unemployment, bankruptcies, foreclosures, and underwater homes have destroyed many neighborhoods and communities across the country, while decimating the tax base of cities, towns, counties, and states. Added to that are the demoralizing and gnawing invisible costs of anguish, anger, depression, and often humiliation from losing a job and failing to provide for a family; being forced to move out of a home, often to move in with relatives or friends, but sometimes to move into a car or homeless shelter; watching your children get sick with no ability to go to a doctor or pay for a prescription; signing up for food stamps and having your children get free school lunches that you can no longer afford; having to break it to your children, who have worked so hard in school, that college is no longer affordable and they have to get a job, any job, as soon as possible; or your spouse finding out that you aren’t retired but working at a low paying, often minimum wage, job because you need the money. This list sadly goes on and on, including spouse, child, alcohol, and, too often, drug abuse.

More complex in terms of the development of transnational financial regulation. The EU Commission published proposals for the European Banking Union: a proposed regulation giving regulatory powers to the ECB, a proposed regulation amending the regulation establishing the European Banking Authority, and a Communication setting out a roadmap. And the Bundesverfassungsgericht is allowing Germany to ratify the ESM Treaty, subject to limitations with respect to the amount of the German contribution and requirements for the German Parliament to be informed.

And more complex in terms of assigning blame and sanctions. The FSA made an example of Peter Cummings, formerly of HBOS, fining him half a million pounds and banning him from holding any senior position in a UK bank, building society, investment or insurance firm “on the grounds that he lacks competence and capability” to act in such a role. The 92 page final notice notes a number of other factors in HBOS’ problems which it says mitigated the sanction imposed, including Mr Cummings’ giving up of a bonus. But the FSA says he should have improved controls, and notes a number of issues with the culture at the bank, including a “culture of optimism” and the fact that staff were encouraged “to focus on revenue rather than risk.” A full report into HBOS is to come out in due course (the notice says that work on the report had to follow enforcement proceedings, suggesting that no-one else at HBOS will be sanctioned). Mr Cummings criticizes the FSA for taking action against him alone at HBOS, saying the action “is tokenism at its most sinister.” Nils Pratley asks why the other directors are “off the hook.”

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