Speech of the Week; Another regulator comes out for regulatory simplicity.
The same "fundamentally flawed" system of financial rules that failed in 2008 lives on, "but with more complexity" in the latest proposals from regulators.</br></br>That was the blunt message on Friday from Federal Deposit Insurance Corporation Director Thomas Hoenig. He was talking about the pending implementation of international bank capital standards known as Basel III. And thank goodness Mr. Hoenig is not the only voice of sanity in the regulatory wilderness.</br></br>On we told you about the Bank of England's Andrew Haldane, who has shown that in many cases Basel's expensive, complicated regulations do actual harm by obscuring the true condition of big banks. Mr. Haldane's call for simplicity struck a chord with readers. A few of their appear nearby.</br></br>Not that Journal readers ever expected a convention of global bureaucrats in a Swiss village to protect U.S. taxpayers. But Mr. Hoenig did a public service at an American Banker symposium by reviewing the relevant history from 2008: "It turns out that the Basel capital rules protected no one: not the banks, not the public, and certainly not the FDIC that bore the cost of the failures or the taxpayers who funded the bailouts. The complex Basel rules hurt, rather than helped the process of measurement and clarity of information."</br></br>Observing a Basel system that only grows more complicated as U.S. regulators prepare to implement the latest version, the former president of the Federal Reserve Bank of Kansas City also pointed out that the biggest winners from such regulatory regimes are never the little guys. Mr. Hoenig explained that "the most brazen and connected banks with the smartest experts will game the system. In private discussions, I find a good deal of uneasiness about Basel III's ability to be more effective than previous Basel efforts; however, there is a sense that we cannot go back."