Voluntary self-regulation on a global scale may be the answer to controlling systemic risk to the financial system, according to some industry participants. For others, such an approach could accentuate the very problems it is trying to solve.
"It's a noble effort," says banking consultant Bert Ely of the Group of Thirty report Global Institutions, National Supervision and Systemic Risk, "but the approach has fatal flaws. The G30 wants to marry industry self-regulation with government supervision in a manner that is unworkable.
"The operative principle will be that if institutions don't do a good job of policing themselves, the standing committee will kick them out of the club," says Ely. "That may be fine for those who remain, but those who get kicked out will still be in business." Ely expects some would become industry renegades, causing the type of problems that lead to government supervision in the first place.
