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13 J. Banking Reg. 1 (2012)

handle is hein.journals/jlbkrg13 and id is 1 raw text is: Editorial Market and regulatory balance Journal of Banking Regulation (2012) 13, 1-3. doi:10.1057/jbr.2011.24 All of the official reviews and reports following the financial crisis in 2008-2009 have led to a new era of substantial re-regulation in most countries with the rejection of the earlier dominant ideas of market efficiency and rational expectations, as well as a consequent natural market correction and self-regulation. It is not that these theories were fundamentally wrong in all respects but simply that they were relied on to an excessive, and arguably wholly irresponsible, degree both by markets and the authorities and allowed to divert attention from necessary but balanced and proportionate financial regulation and supervisory compli- ance. The danger now is that we have moved too far to the other extreme with re-regulation stifling the necessary services and support that we need from the financial sector which will constrain both short-term recovery and future longer-term growth and prosperity. The reconstituted Financial Stability Board (FSB), formerly the Financial Stability Forum, has produced a formidable number of new technical and policy papers. It has also forced other sector technical committees to undertake a fundamental review of their earlier standards and principles and report back through an almost endless series of continuing progress reports. The Basel Committee on Banking Supervision has issued over 30 papers (possibly nearer 40 now) in response to the crisis with its work principally focusing on enhanced capital, liquidity and leverage under Basel III and additional new principles on risk manage- ment, corporate governance, remuneration, supervisory college supervision and cross- border bank resolution. This is an impressive and balanced package in a difficult area. The EU has more belatedly announced over 47 separate initiatives having grasped the oppor- tunity for further reform left open through an almost endless period of 'bank bashing' and bank blame and recrimination within Europe and elsewhere. The EU's latest initiative may nevertheless only have the effect of forcing large areas of financial activity outside Europe though an ill-judged and inevitably regressive and unsuccessful financial transaction tax (FTT). This is in addition to other restrictions on bank remuneration (bonus) packages and national bonus taxes and bank levies already imposed at the national levels. The UK Coalition Government has sepa- rately pushed forward its politically driven new structural agenda with the abolition of the Financial Services Authority (FSA) and re-transfer of core supervisory function to the Bank of England through its new Prudential Regulatory Authority (PRA) subsidiary and allocation of non-prudential matters to a new Financial Conduct Authority (FCA). The most significant demonstration of the new more onerous control culture that has emerged was with the enactment in the United States of the 2319 page Dodd Frank Wall Street and Consumer Protection Act in July 2010 with volumes of new rules and institutional and substantive regulatory changes to follow. Dodd Frank specifically includes a partial re- introduction of Glass Steagall investment and commercial banking separation under the 'Volcker' restrictions on proprietary (prop desk) trading. The United Kingdom is now expected to adopt a less extreme, but still costly, form of © 2012 Macmillan Publishers Ltd. 1745-6452 Journal of Banking Regulation Vol. 13, 1, 1-3 www.palgrave-journals.com/jbr/

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