Dodd-Frank: Time to Think Again?

Morpheus

Comments

  • James, an interesting summary. The bit that strikes me here and did when I read it elsewhere is the scale of this ie 848 pages of the Act that then need enacting. If recall correctly only a small fraction has been worked out in detail and even that already translates into thousands more pages. This will keep lawyers and regulators in work for decades, assuming the system as we know it surivives that long. 

    I have two main comments. As a change person we know that the devil is always in the detail, and that even the simplest initial propositions often compound into a many-headed hydra so to start with a complex beast does not bode well. Instinct suggests that this is ultimately unworkable and will need to be simplified.

    It was and looks like a politicians response to public fear. That fear is understandable and the drive to respond is unsurprising, careers are made and broken on less, but will the resultant changes make the world a better place? Of that I am unsure.

    There is one thing that my time in financial services has shown me is that there is a) a lot of money to be made and b) there are some very, very bright people paid large sums of money to work out how to make that money. It has always been the case, at least in the UK, that the regulators have underpaid staff when compared to the market, leaving the brightest to accept positions the other side of the fence. It sometimes seems an unfair battle, but then who said this was fair?

    This Act will be no different. There will be legions look for and finding loopholes and ambiguities that can be exploited, and if there is one we can be certain of it is that they will find opportunities.

    I suspect that this sabre rattling will confuse and confound us for a while, create work for thousands (no bad thing maybe?), but in the end I have my doubts if it will really make the world a safer place to bank.

  • James, an interesting summary. The bit
    that strikes me here and did when I read it elsewhere is the scale of this ie
    848 pages of the Act that then need enacting. If recall correctly only a small
    fraction has been worked out in detail and even that already translates into
    thousands more pages. This will keep lawyers and regulators in work for
    decades, assuming the system as we know it surivives that long. 

     

    I have two main comments. As a change
    person we know that the devil is always in the detail, and that even the
    simplest initial propositions often compound into a many-headed hydra so to
    start with a complex beast does not bode well. Instinct suggests that this is
    ultimately unworkable and will need to be simplified.

     

    It was and looks like a politicians
    response to public fear. That fear is understandable and the drive to respond
    is unsurprising, careers are made and broken on less, but will the resultant
    changes make the world a better place? Of that I am unsure.

     

    There is one thing that my time in
    financial services has shown me is that there is a) a lot of money to be made
    and b) there are some very, very bright people paid large sums of money to work
    out how to make that money. It has always been the case, at least in the UK, that the
    regulators have underpaid staff when compared to the market, leaving the
    brightest to accept positions the other side of the fence. It sometimes seems
    an unfair battle, but then who said this was fair?

     

    This Act will be no different. There will
    be legions look for and finding loopholes and ambiguities that can be exploited,
    and if there is one we can be certain of it is that they will find
    opportunities.

     

    I suspect that this sabre rattling will
    confuse and confound us for a while, create work for thousands (no bad thing
    maybe?), but in the end I have my doubts if it will really make the world a
    safer place to bank.

    • Thanks for your thoughts Ian, it is interesting to get opinions of individuals ‘at the coalface’ so to speak and I couldn’t agree more about the intrinsic unfairness in the disparity in pay (and therefore qualifications) between the regulators and those in the market.

  • Dodd Frank suffers from too many objectives.  In a legislative environment less influenced and more influenced by a coherent attempt to solve real problems, Dodd-Frank would have had the single objective of reducing and making transparent systemic risk.  Instead we have the additional objectives of improving investor protection, making OTC markets more efficient and of protecting retail depositors.   Arguably these 3 did not require legislation being existing regulator responsibilities / objectives.  
    A more specific focus on systemic risk would have lead to a focus on: OTC clearing, EOD only reporting, bilateral margining and the associated margin / capital rules as well as on recovery and resolution planning.  As a result of both focus of scarce resources and simplification of requirements, we may well have been live with these mandatory activities today in the US.

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