COMMENT One of the features that singles out the Warwick Commission on International Financial Reform, which publishes its final report on Friday, is that while other expert groups tiptoe around it, we have been able to point to the true source of the worst financial crisis since the 1930s: regulatory capture and boomtime politics.
Today regulators are working conscientiously to address the issue of banks being too big to fail; the lack of responsibility that can follow securitisation; imperfections in credit ratings; capital requirements which accentuate boom and bust; regulators which were global champions for their local banks; and more. But we should not forget that just a few years ago, regulators, with few exceptions, wanted big banks to have lower capital requirements if they had sophisticated risk models; they were cheerleaders for securitisation and asset sales by banks because, they said, this spread risks; they hard-wired credit ratings into bank risk assessment; they promoted home country regulation over host country control; and they dismissed the idea that regulation was dangerously pro-cyclical.
