Op-Ed Contributors

Lesson is to go back to basics

By Xiao Gang (China Daily)
Updated: 2010-09-16 07:48

This year has been fruitful with abundant achievements in the field of the global financial regulatory rulemaking. The Dodd-Frank Wall Street Reform and Consumer Protection Act marks, in the midst of controversies and compromises, greatest legislative change to financial supervision since the 1930s.

The 2,319-page bill is complicated and it contains a comprehensive set of reforms on systemic risk regulation, banking, securities, derivatives, hedge funds and private equity funds, executive compensation, consumer protection, rating agency regulation and corporate governance.

Soon after the bill's passage, the Financial Stability Board and the Basel Committee on Banking Supervision released two research papers, assessing the long-term economic and transitional economic impact of the new regulatory framework. The two papers conclude that the benefits of stronger capital and liquidity requirements in the financial sector will be significant, and the costs are likely to be modest.

The new Basel rules, known as Basel III, appeared to be softer than last December's harsh proposals. Bankers can breathe a sigh of relief at the main changes and looser definition of tier one capital, liquid assets and leverage ratio.

The new rules are awaiting endorsement at the November G20 summit in Seoul.

The overall purpose of new reform and rules is to prevent a repetition of the 2007-08 global financial crisis. Regulators hope to impose many comprehensive measures to make the financial system safer, while market participants naturally rethink their strategies and business models in response to the changes.