WASHINGTON (Reuters) - Bank regulators need to develop much simpler rules to make it harder for large financial firms to game the supervisory system, Bank of England official Andrew Haldane said on Tuesday.
“We need to do a radical pruning, simplifying of our regulatory apparatus (that) places much less emphasis on what are unreliable measures of risk,” Haldane, the BoE’s executive director for financial stability, told a conference sponsored by the Federal Reserve Bank of Atlanta.
He said current international capital rules place undue burdens on small firms and may exacerbate, over time, the problem of banks that are seen as “too big to fail.”
“Complex frameworks if anything are easier to arbitrage, easier to game,” he said.
Haldane said that the world’s major economies essentially allowed banks to regulate themselves in the run-up to the global financial crisis of 2007-09, with disastrous results.
“We have moved to a system where we essentially ask banks to grade their own exams,” he said. “The self-regulatory regime that we’ve put in place has been gamed successively.”
The Dodd-Frank Act, the U.S. financial reform law that Congress passed in response to the financial crisis, is some 2,300 pages long, and has been criticized for its complexity and opaqueness.
Reporting by Pedro Nicolaci da Costa; Editing by Steve Orlofsky