Mojmír Hampl, Vice-Governor, CNB
Speech to AIMA Regulatory Forum
Hong Kong, 8th March 2012
Thanks to the organisers for their kind invitation.
As announced, I will speak more about the regulatory debate as such, or in general, than about regulation of the hedge fund industry. And I will articulate the position of a central bank which is in a minority in the EU in one respect: it has both monetary policy and supervision of the whole financial market concentrated under one roof. So we can apply a more holistic approach than other central banks.
After being a witness to, and participating in, numerous EU regulatory debates either at the working level or at the level of European finance ministers, it seems to me that our debates sometimes suffer from certain shortcomings. Let me name them.
Our regulatory debate is procyclical. There are bubbles not only in the financial markets, but also in the market for regulatory ideas. We could well be experiencing one now.
While in the area of the sovereign debt crisis in the EU many argue that we are delivering too little, too late, in the area of regulation we are rather delivering too much, too soon, or at least not at the best possible time.
This sometimes happens inadvertently, as a consequence of so-called “agenda thinking”.
Just to explain what I mean: a policy body has many items on its agenda. And each of these individually, or all else being equal, would be worth considering. But pooling all these items together might create a problem.
Let’s say we have on the agenda:
Item 1: FTT
Item 2: Solvency II
Item 3: Basel III
Item 4: CRD IV
And experts on an individual basis argue convincingly that their proposal is justified right now. But nobody thinks beyond the agenda, about the cumulative impacts. We have no experts on the “combined effects of regulation”.
So one might ask whether now is really the best time – especially in the developed world – to put all the ideas in motion?
If yes, then don't be surprised if deleveraging occurs and the financial industry as a whole becomes less attractive to investors.
At the last FSB consultative group meeting, one of my dear colleagues asked: Where have all the investors disappeared? And why are we experiencing deleveraging? And he really meant that seriously. But we are doing our best to discourage investors from the industry and to induce deleveraging.
Some could even argue that this approach might be seen in retrospect as a macroeconomic policy mistake similar to that of 1930's, when policy-makers tried to keep their currencies pegged to gold at any price and thus conducted inappropriate and completely counterproductive monetary policy – tightening at the worst possible time.
I think that in these discussions we should bear in mind that the reaction to the financial crisis should not be worse than the crisis itself and that even the best possible rule/regulation never distinguished bad from good.
Moreover, we are concentrating too much on the behaviour of individual players in the market, and less on macroeconomic policies prior to the crisis. And I think this is wrong.
Thank you for your attention.