How to regulate the Banks?

[cHeal]

Don't.

Insure them instead. The Private Insurers CANNOT deal with any sort of crisis in the market so they should not be allowed operate, they are not fit for purpose.

Instead create a mandatory National Financial Insurance, issued by the state. Make the banks risk asses their investments and then insure it. Higher premiums for higher risk. Every loan, mortgage and investment would be rated and insured. It would cut the legs from under the sub prime market as it would make it more espensive for a finanical institution to operate in that market, but don't stop them, just charge them a large premium on the insurance of that sort of sh*t. No need to be looking through bank books to see if they have risky assets, the state insurance agency would no exactly how risky banks are being.

That's a rough outline because I couldn't be bother typing out loads just for it to be rejected out of hand by the first two numpties who open the thread.

Positives:

Make money off the banks in the good times, to help pay for the inevitable bad times.

The regulation of banks would not only be self sufficient but would actually offer gross profit for the public purse.

The government could retake control over the levers of monetary policy by increasing and decreasing the insurance premiums as necessary to control money supply.

The Insurer/Regulator would only have to look at the instances why the bank needs to claim, in order to see if mismanagement or fraud occurred.

cons:

Well it could be a bit or a nightmare to insure each individual transaction, but in reality that isn't actually necessary, though I think it could be quite easily streamlined to work efficiently. It would be done by the banks though, which at the very least would mean it wouldn't be a government bureaucracy!

[121.5]

any of the above would make financing for business uncompetitive

if you have to have so much handholding regulation then why not simply Nationalise the banks?

Thats what WILL happen.

[20000miles]

Instead create a mandatory National Financial Insurance, issued by the state.

Moral hazard, much?

Market based insurance surely has to be the way to go. Let the market regulate the market.

[cHeal]

Are you joking? Market based insurance has failed absolutely.

[Libero]

Instead create a mandatory National Financial Insurance, issued by the state. Make the banks risk asses their investments and then insure it. Higher premiums for higher risk. Every loan, mortgage and investment would be rated and insured. It would cut the legs from under the sub prime market as it would make it more espensive for a finanical institution to operate in that market, but don't stop them, just charge them a large premium on the insurance of that sort of sh*t. No need to be looking through bank books to see if they have risky assets, the state insurance agency would no exactly how risky banks are being.

Aren't you just recommending applying different labels to the current regime of requiring licenced credit institutions (read: banks) to hold risk-weighted reserves of capital?

Also, this area of banking regulation and supervision is governed by EU law. The Capital Requirements Directive is the heart of things. So that restricts Ireland's scope for movement. Even if we could run a system different to that applying across the EU, why would we want to? It would hardly make Ireland an easy place for Europeans to do business and run banks. And when you consider how Official Ireland has made a total shambles of regulation so far, why let them invent a whole new system?

There are also moral hazard concerns with your plan: it would set in stone the current (and terribly wrong and expensive) approach of saving every bank. Alternatively, the state really could run it like an insurer and deny claims on the basis of non-disclosure, fraud and illegal practices!

[cHeal]

Any insured assets which were not rated accurately would not be covered by the insurer and in the instance of a bank going under because it under-rated its assets then the government would have the power to nationalize, without the permission of banking heads. Right now we could have nationalized the banks several times over for the same cost as re-capitalisation and in the future, with my system the government COULD actually afford to do it because it has been making money off the banks while they were operating profitably.

My plan actually removes the moral hazard that is now present. The government is not the last resort, it is the only resort, it will no longer be a safety net, the insurance agency will be looking to provide value for money for the public and because of the rating system, risky banking practises would be seriously curtailed because it would lead to higher premiums and any avoidance of that premium would be illegal, it would be fraud. Bankers who acted irresponsible wouldn't just have to step down, they may actually face jail time if any information they gave to the insurer could be determined to be false or misleading.

This system would also give the state back the levers of monetary policy, which currently reside in Brussels. The only problems I foresee would be that 1; the EU would not allow it, 2; The rating of each investment, if not handled correctly could be too complex and expensive for the banks, making them uncompetitive.