Clifford Chance
Financial regulatory reform - avoiding the trap of over-regulating banks
13 April 2011
Bank regulators and policymakers are running out of time to find the right balance in their response to the financial crisis, sparking fears that over-regulation could undermine their efforts to reform the financial system.
Despite the staggering volume of new regulation emerging from Europe and the USA, the regulatory response to the financial crisis has so far been mixed, with a handful of successful elements, such as the Basel III package of capital and liquidity reforms, standing out as examples of international consensus.
However, there are concerns that such a large volume of regulation may result in poorly-constructed and unevenly-applied rules that could diminish the very value of the intended reforms.
The continuing regulatory uncertainty is also making it difficult for banks to assess the costs of complying with the new regulatory framework being imposed on them.
The publication of the interim findings of the UK's Independent Banking Commission on 11 April illustrates the challenge facing regulators.
A failure by the Commission to ensure that its final recommendations avoid the pitfalls of over-regulation could prove costly if it reinforces the view that the UK does not believe that a level playing field is essential for the creation of a successful regulatory regime for banks.
