Last week, global regulators in Basel, Switzerland, agreed to require the world's 30 or so biggest banks to hold an extra 1% to 2.5% of extra capital in reserve, on top of the 7% in capital required by last year's rules. The regulators believe the measures should help protect the global financial system from another major collapse.
Critics say the move will hurt the already fragile recovery and is just another example of over-regulation getting in the way of capitalism. Just last month, JPMorgan Chase (JPM) CEO Jamie Dimon was applauded by his fellow bankers when he took on Federal Reserve Chairman Ben Bernanke over all the new regulations that had been implemented since the crisis.
In the accompanying Daily Ticker segment, Aaron Task moderates a lively discussion on the role of regulation in the financial crisis between Yaron Brook, president of the Ayn Rand Institute, and David Callahan, founder of Demos, a public policy research firm.
As you might expect of a Rand follower, Brook believes regulation only harms the economy. "This crisis was caused by excessive regulations," he says. "The industries that failed were housing, mortgages and banking," three of the most regulated industries in history, he argues. Brook also places blame on the Federal Reserve for keeping rates artificially low.
On the flip side, Callahan champions more oversight by regulators. "There's lots of evidence that deregulation is a major culprit" of the crisis, he says. His research shows weak regulations failed to uncover rampant home appraisal fraud that resulted in excessive home prices. He also says the failure of the ratings agencies was due to rampant conflict of interests that were not regulated.
So, do we have too much or too little regulation? What's your take? Let us know in the comment section below.
- Yaron Brook
- JPMorgan Chase
- global financial system
- the Ayn Rand Institute
- David Callahan
- Jamie Dimon