There are reasons, argued by Nouriel Roubini, Professor of Economics at the Stern School of Business, NYU, Chairman of Roubini Global Economics :
1. Smart and greedy bankers and traders will always find ways to circumvent new rules
2. CEOs and boards are themselves subject to major conflicts of interest, because they don’t represent the true interest of their firms’ ultimate shareholders
3. CEOs and boards of directors of financial firms – let alone regulators and supervisors – cannot effectively monitor the risks and behaviors of thousands of separate profit and loss centers in a firm, as each trader and banker is a separate P&L with its own capital at risk
As a result, any reform of regulation and supervision will fail to control bubbles and excesses unless several other fundamental aspects of the financial system are changed :
First, compensation schemes must be radically altered through regulation, as banks will not do it themselves for fear of losing talented people to competitors
Second, repeal of the Glass-Steagall Act, which separated commercial and investment banking, was a mistake.
Third, financial markets and financial firms have become a nexus of conflicts of interest that must be unwound.
Fourth, greed cannot be controlled by any appeal to morality and values. Greed has to be controlled by fear of loss, which derives from knowledge that the reckless institutions and agents will not be bailed out.
Source : http://www.project-syndicate.org/commentary/roubini28/English
1. Smart and greedy bankers and traders will always find ways to circumvent new rules
2. CEOs and boards are themselves subject to major conflicts of interest, because they don’t represent the true interest of their firms’ ultimate shareholders
3. CEOs and boards of directors of financial firms – let alone regulators and supervisors – cannot effectively monitor the risks and behaviors of thousands of separate profit and loss centers in a firm, as each trader and banker is a separate P&L with its own capital at risk
As a result, any reform of regulation and supervision will fail to control bubbles and excesses unless several other fundamental aspects of the financial system are changed :
First, compensation schemes must be radically altered through regulation, as banks will not do it themselves for fear of losing talented people to competitors
Second, repeal of the Glass-Steagall Act, which separated commercial and investment banking, was a mistake.
Third, financial markets and financial firms have become a nexus of conflicts of interest that must be unwound.
Fourth, greed cannot be controlled by any appeal to morality and values. Greed has to be controlled by fear of loss, which derives from knowledge that the reckless institutions and agents will not be bailed out.
Source : http://www.project-syndicate.org/commentary/roubini28/English
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