G20 and EU ‘posturing’ could exacerbate future banking crises
By Louise Armitstead
The efforts of the G20 and European Union to overhaul financial regulations have been lambasted for being “disingenuous political posturing” that are “increasing the likelihood of future meltdowns”, an influential think-tank has warned.
The TaxPayers’ Alliance has published a paper accusing politicians and regulators of basing their response to the financial crisis on a “mistaken view of its causes” and “political considerations”.
The paper, which was co-written with the Lagatum Institute, an academic group that focuses on wealth, attacks the key aim of politicians including Prime Minister David Cameron and Chancellor George Osborne for internationally co-ordinated regulation. It warns that “global regulation causes global crises”.
The authors, Dalibor Rohac of the Legatum Institute and Matthew Sinclair of the Taxpayers’ Alliance, said in the report: “Common capital adequacy rules, while increasing transparency, also encourage homogeneity in investment strategy and undertaking of risk, leading to a high concentration of risk. That means that global regulations can be dangerous because they increase the amplitude of global credit cycles.”
The paper adds: “The Basel regulations may still be procyclical, imposing more onerous requirements on institutions at times when the system is in trouble.”