Rover the regulator

PITY the financial regulator. The evidence suggests that bank executives, and the independent directors on their boards, fail to understand the complex organisations they control. How is an outside supervisor to manage, particularly when the best and brightest of its staff can be lured away by the higher salaries on offer in the City or on Wall Street?

In practice, as Andrew Haldane of the Bank of England highlighted in a speech at the recent Jackson Hole meeting of central bankers (see Free Exchange), regulators have responded by trying to match the complexity of the firms they supervise. The first set of Basel rules on bank capital was just 30 pages long; the second go had 347 pages; Basel 3 has 616. In America the Glass-Steagall act of 1933, which separated commercial and investment banking, was a concise 37 pages; the Dodd-Frank act of 2010 ran to 848, and may spawn a further 30,000 pages of detailed rule-making by various agencies.