What Does A Global Regulator Look Like?
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After the G20 meeting, we wait for a detailed description of Global Regulation. The herd-like attitude that drives financial institutions' behaviour will lead them to believe that a single institution will fix the problems they created. And while we wait we hope no other crisis appears.
"This is a global problem so we need a global solution" is the mantra. However the European Central Bank has shown that a 'one size fits all' banking solution does not work well for some parts of Europe, and extending such a model to cover more even more diverse economies shouldn't be considered.
So what could such a Global Regulator look like? The Bank of International Settlements is a global financial body, but its effectiveness in dealing with a global regulation is poor. The time lag between some country adoptions of Basel II has been about 10 years. A global regulator will need to be a bit more active.
The current crisis behaved like a disease. Originally it started due to poor banking practices in the US, but quickly spread through Europe and Asia identifying underlying problems as it mutated from sub-prime mortgages to liquidity problems until the whole of the ecosystem was impacted. Whereas biological diseases are contained through quick action, quarantining and providing daily information to the public, this was not a model that the globalised financial markets felt they could coordinate.
My proposal is based on a version of the World Health Organisation called the World Finance Organisation (WFO), headed up by George Soros (no armchair general). The heads of the national banks would report into this organisation and provide monthly data for analysis. The WFO could issue health warnings as appropriate at a national level. It would develop tools and processes similar to Google Flu Trends to identify financial pandemics and even local clusters of bank failure and fraud.
During financial crises, the WFO would be able to provide daily commentary on the actions countries were taking. Certainly the approach taken by Margaret Chan of the WHO in the past few years compares favourably with that taken in Europe and the US during the current crisis.
Using epidemiological principles and tools we may be able to identify and contain the next spread of financial infection in the same way that other epidemics have been stopped in their tracks.
So what could such a Global Regulator look like? The Bank of International Settlements is a global financial body, but its effectiveness in dealing with a global regulation is poor. The time lag between some country adoptions of Basel II has been about 10 years. A global regulator will need to be a bit more active.
The current crisis behaved like a disease. Originally it started due to poor banking practices in the US, but quickly spread through Europe and Asia identifying underlying problems as it mutated from sub-prime mortgages to liquidity problems until the whole of the ecosystem was impacted. Whereas biological diseases are contained through quick action, quarantining and providing daily information to the public, this was not a model that the globalised financial markets felt they could coordinate.
My proposal is based on a version of the World Health Organisation called the World Finance Organisation (WFO), headed up by George Soros (no armchair general). The heads of the national banks would report into this organisation and provide monthly data for analysis. The WFO could issue health warnings as appropriate at a national level. It would develop tools and processes similar to Google Flu Trends to identify financial pandemics and even local clusters of bank failure and fraud.
During financial crises, the WFO would be able to provide daily commentary on the actions countries were taking. Certainly the approach taken by Margaret Chan of the WHO in the past few years compares favourably with that taken in Europe and the US during the current crisis.
Using epidemiological principles and tools we may be able to identify and contain the next spread of financial infection in the same way that other epidemics have been stopped in their tracks.
Here Is The Writer : Thomas More
'Thomas More' moved to London to see the streets that were paved with gold and chip off the occasional nugget from time to time. Instead has worked as a software developer, product manager, and a consultant in a number of start-ups. Today he finds himself as a Managing Consultant in Financial Services for a global but shrinking organisation. He admires the brilliance of PG Wodehouse and Damon Runyon, but fears that life in London is more influenced by Quentin Tarantino.
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