Regulation & ComplianceAre regulations increasing risk?

Are regulations increasing risk?

According to a new report from LSE, regulations that force all banks to implement the same preventative techniques could make financial markets less secure and trigger another crash.

According to a new report from London School of Economics (LSE), regulations that force all banks to implement the same preventative techniques could make financial markets less secure and trigger another crash.

The Systemic Risk Centre (SRC) say that financial institutions have been encouraged to adopt similar models without being sure that the model being used is the safest and if all use the same techniques, all will fail if another crash occurs. “If the authorities pick one modelling approach over another, they may just as easily be backing the wrong horse, a model that is less accurate,” the report said.

The Telegraph revealed that the SRC believed that Basel III was in fact measured and forecast risk inaccurately compared to the previous Basel II regime. The SRC also warned regulators that some aspects of the financial system have not been made safe and should not be assumed secure, despite businesses complying with regulations.

Alongside this, the report highlighted that regulators have been living with a false sense of security since the 2008 crash and a manifestation of, the famous economist, Hyman Minsky’s caution that “stability is destabilising,” according to the Telegraph.

Jon Danielsson and Jean-Pierre Zigrand, professors at LSE, explain that although it is not possible to fully eradicate risk, regulators should more on forming a less dangerous market. “The objective should be a more resilient financial system that is less prone to disastrous crises while still delivering benefits for wider society,” Danielsson and Zigrand said.

Related Articles

Which transaction monitoring software is right for my institution?

Regulation & Compliance Which transaction monitoring software is right for my institution?

2d Elaine Dorkham
Bringing cryptocurrency to the front line  

Payments Bringing cryptocurrency to the front line  

3m Karen Vickers
China’s regulatory changes stimulate international interest

Asia Pacific China’s regulatory changes stimulate international interest

4m Michael McCaw
Treasury TV: Yeng Butler compares US and European MMF reforms

Compliance Treasury TV: Yeng Butler compares US and European MMF reforms

4m Victoria Beckett
AccessPay offers free tool to help corporates utilise PSD2

Payments AccessPay offers free tool to help corporates utilise PSD2

4m GTNews
Many treasurers juggle increased GDPR burden with business restructuring

More News Many treasurers juggle increased GDPR burden with business restructuring

5m Victoria Beckett
The arrival of PSD2: views from the market

Banking The arrival of PSD2: views from the market

5m Victoria Beckett
PSD2: dull name, but seismic effect

Clearing & Settlement PSD2: dull name, but seismic effect

5m Alex Kwiatkowski