finance - simple as a dog catching frisbee

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http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech596.pdf

http://www.kansascityfed.org/publicat/sympos/2012/Haldane-Madouros-final.pdf

A top director of the Bank of England called for a return to the Glass-Steagall principle of reforming the banking system. 


The speech was written by Andrew G. Haldane, Executive Director, Financial Stability and member of the Financial Policy Committee, and Vasileios Madouros, Bank of England economist, and delivered by Haldane, well known as an admirer of Glass-Steagall.


His speech, "The Dog and the Frisbee," was unambiguous about the virtues of Glass-Steagall. As the title implies, the speech calls for keeping the regulation of banks as simple as the ability for a dog to catch a Frisbee without knowing any laws of physics. The bulk of the 36-page speech, including graphs is a experimental demonstration, that complex regulatory systems like the Basel agreements, the Dodd-Frank Act, or the Vickers recommendations, are doomed to failure.
He then attacks the last 30 years' practice of "pricing risk in the financial system, rather than prohibiting or restricting it," but under current conditions of "an uncertain world. Quantity-based restrictions may be more robust to mis-calibration. Simple, quantity-based restrictions are the equivalent of a regulatory commandment: 'Thou shalt not.' These are likely to be less fallible than: 'Thou shalt,' provided the internal model is correct." That is one reason why Glass-Steagall lasted for 60 years longer than Basel II.


To ask today's regulators to save us from tomorrow's crisis using yesterday's toolbox is to ask a border collie to catch a Frisbee by first applying Newton's Law of Gravity."