SOME LESSONS OF THE FINANCIAL CRISIS
November 5, 2008
Vast efforts are being made to extricate us from the worst financial crisis in recent memory, but there is little focus on preventing the next one. Rather than wait, there are things we can do now to avoid another crisis, or at least cushion the blow when it comes, says Stephen Schwarzman, chairman, co-founder and CEO of the Blackstone Group, an investment and advisory firm.
Below are seven principles that should underlie any system of global financial regulation and monitoring:
- Finalize a common set of accounting principles across borders; in global markets, you cannot have global institutions abiding by differing standards of accounting and disclosure simply because they are headquartered in different countries.
- Structure the financial regulatory regimes in the world's major markets along broadly the same lines.
- Institute full transparency for financial statements; nothing should be eliminated.
- Institute full disclosure of all financial instruments to the regulator; no regulator can do its job of assessing risk and systemic soundness if large parts of the financial markets are invisible to it.
- Grant regulators oversight over all financial institutions that participate in the markets, regardless of their charter, location or legal status.
- Abolish mark-to-market accounting for hard-to-value assets; however, a financial institution would not be forced to suddenly take huge write downs at artificial, fire-sale prices and thus contribute to financial instability.
- Move to a principles-based regulatory system rather than a rules-based system because the latter system is utterly incapable of dealing with the speed and complexity of the modern financial system.
To implement a new system of global financial regulation and monitoring, we need a new global organization of regulators. We live in global markets, but the regulators of the world's major economies are largely operating independently, says Schwarzman.
Source: Stephen Schwarzman, "Some Lessons of the Financial Crisis," Wall Street Journal, November 4, 2008.
Browse more articles on Government Issues