Creditflux Newsletter

Unfortunately regulators were proved to be simply commentators in this crisis: While some of their comments are accurate ex-post, their function is to regulate the ongoing functions of banks, not simply comment on their past deeds. They contributed to the crisis like absent parents contribute to their offspring's misbehavior.

With all due respect, the regulators once again are showing how little they understand the business. As the first commentator highlights, regulators are the ones who have put ratings at the top of the regulatory framework (Basle II). Additionally, there is no question that the basis was assumed to mimic the historic low volatility of the past -- as that was the only thing they had to look at (and besides VaR, which relies on historic voaltiliity and price transparency also forces people into this mindset). When will the regulators realize they have much responsibility to bear (along with the bankers)?

while hindsight is 20/20, i think the regulator is right to point out the above failures - banks definitely didnt mark positions to reflect the above risks appropriately. what's worse is that there was a lot of p&l booked which resulted from positions that were not appriopriately reserved against. This p&l resulted in big bonuses and a illusion that certain businesses/trades were profitable when they weren't

You can see that the regulators haven't got a clue why the banking system got into this mess. They are still saying that banks had enough capital going into the crisis (er, no they didn't). So what is their assessment of what went wrong? Banks relied too much on ratings they say. But guess what? The Basel 2 rules that they are now pushing increase that dependence on ratings.