Arguments for and Against Complex Regulation in Banking Essay

1121 WordsDec 23, 20125 Pages
It is a well-known fact that nowadays every single thing in every single area is under control. Indeed, governments want to master everything and put as much limits as they can to avoid crisis. Yet, it cannot be denied that among the sectors “affected” by regulation, the area of banking is one of the most important. In an original speech pronounced in August 2012, Andrew Haldane, the director of the Bank of England denounced a too much complicated regulation in banking. If Haldane admits that the regulation is inevitable, it remains that a complex regulation is sometimes useless. Haldane’s speech entitled “The dog and the frisbee” has been discussed in an article in The Economist of the 8th September 2012. What are positive and negative…show more content…
As for dogs and Frisbees, Haldane thinks regulation must be made thanks to regulator’s experience and not by editing complicated texts such as Basel II, Basel III or Dodd Frank act. Through a particular example Haldane highlights the fact that instead of focusing on the accumulation of statistics, we should rely on the judgment and experience of people. Let’s now focus on Glass-Steagall Act, Basel I, Basel II, Basel III and Dodd Franck act and weigh the pros and cons of each of these regulations texts. The Glass-Steagall Act occurred after the 1933 crisis. Following the article, it extols “separated commercial and investment banking”. For Haldane that concise article is one of the most efficient through history and is an essential model for banking reform today. Nevertheless we notice that the American bank Lehman Brothers which is a pure bank of investment and the British bank “Northern Rock” which is a pure commercial bank both collapsed. That example shows that the Glass-Steagall Act can be in some situations inappropriate. Basel I, Basel II and Basel III are described by Haldane as the “tower of Basel”. Unlike Basel I which was written in only 30 pages, Basel II is 347 pages long and Basel III is 600 pages long. Basel I refer to a set of recommendations in 1988 by the Basel Committee, a committee bringing together central bankers of the G-10 under the aegis of the Bank for International Settlements in Basel. The act published a
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