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Squaring the circle of financial intermediation

Tuesday 13 July 2010 - by Mojmír Hampl


The same applies to supervisory initiatives. Three new pan-European agencies, so-called ESAs, are to be established in addition to the European Systemic Risk Board, based on the principles articulated in the de Larosière report; the powers of colleges of supervisors are to be increased; the working group led by the Swedish central banker Lars Nyberg has suggested the compulsory establishment of Cross-Border Stability Groups in the EU and so on.

It almost looks like national-level authorities will participate in an intricate web of EU-level regulatory and supervisory committees, boards, and agencies, while having less and less time to do their real job, that is, supervising their respective financial sectors.

In short, there is a risk that the world will end up implementing an uncoordinated and poorly thought out sum of many measures, leading to clear regulatory overkill.

The bundle of reforms gravitate toward a financial sector that will resemble a classical public-goods-providing “utility,” a sector attracting little capital and thus shrinking and becoming more expensive for its end-users.


We seem to be heading for less banking and less financial intermediation and thus less efficiency in the economy as a whole.

Do we want to pay such a high price for the crisis and subsequent regulatory madness when we know for sure that we can never have a perfect financial sector anyway?


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