Thursday, May 21, 2015

Finance Behemoths Don't Like Volatility And Want To Regulate It Away

Volatility is great if you are halfway good at what you are doing.
On the other hand, incumbents love to use regulation to entrench their position vis-à-vis more nimble but less richly financed upstarts.

From the Washington Examiner:

Finance execs call for new regulatory tools to fight bubbles

A group of highly influential financial executives have expressed support for giving their regulators new authority to take preemptive action against potential speculative bubbles.

In a statement coordinated by the World Economic Forum, the Swiss nonprofit that coordinates the annual meeting of business leaders and politicians at Davos, 15 CEOs and other executives of top financial firms such as HSBC and BlackRock called on regulators to embrace "macroprudential" regulations.

Such rules are aimed specifically at preventing asset prices from rising out of line with economic fundamentals and risking a market crash, as happened with the U.S. housing market in 2007 and 2008. Macroprudential regulations are thought of as distinct from rules and oversight that apply to specific banks or other firms. 
While the proper use of macroprudential tools is a topic of ongoing consideration among U.S. regulators, the executives write that they have concluded that such tools are necessary "to help achieve the right balance between financial stability and economic growth."

"Macroprudential policies could support financial market stability and thus long-term investors' ability to provide risk capital to the real economy," Swiss Reinsurance Company CEO Michel Liès wrote.

The authors also acknowledged that "it is important to continue to monitor the possible unintended consequences of these regulations." The problem facing regulators is that it is difficult to distinguish bubbles from normal market movements, and that acting on the basis of limited information could harm innovation and growth....MORE