Are Financial Regulations Hurting the Finance Industry?

Posted: September 29, 2011 in Banks, Basil III
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Financial Regulations appear to be a point of contention, especially to Jamie Dimon of J.P. Morgan. The public seems to want more regulations, but must realize the every regulation has consequences to banking and credit union policy. They will find a way to still make their profit and pass it on to the consumer. The banks and credit unions want less regulation, but can they be trusted according to public opinion? Somewhere in the middle the answer lies.

Jamie Dimon of J.P. Morgan

Jamie Dimon

Dimon has criticized Basel III regulation for over a year and it appears to be for a good reason. Basel III is an international regulation

Basel III may be one of the most economically damaging reforms of all time according to Dimon and the financial company “Clearing House’ which publicized a report yesterday on the problems of Basel III. The main problem Dimon has with Basel III is the capital surcharge, which regulators are trying to impose on large financial institutions. Their logic may be akin to a prison going from putting no one in jail to putting everyone.

The regulators which did a terrible job regulating the financial system, now want to make an arduous amount of rules to solve their lack of ability to govern.

  • Basel III which sets capital at 10% for large financial firms may be the stupidest idea in history. Imagine a bank not borrowing money from another institution to make a loan.
  • A bank now will have to expand its own capital base to make loans. This means banks are less likely to make loans and this means economic growth will be slower. Put it this way a bank won’t expand its own capital to make loans. It won’t make them. That is it.
  • There needs to be a sweet spot between capital and safety. We are swinging to the other pendulum. The other amazing part is the public wants cheap access to credit yet they have no problems protesting Wall Street over regulation.
  • The general public opinion can it be trusted according to Dimon?

On top of this politicians usually are as badly educated in terms of finances as their populace, yet these people also have no shortage of opinions.

So is the Tier 1 capital requirement a good thing for banks to have? Will that cushion avoid future shock in a world financial system that currently tenuous?