I had a colleague once who thought that if you put your thumb over the barrel of an air rifle and pulled the trigger, you would have created a vacuum within the barrel so that the pellet would never reach the other end. He was called "Jeb shot-thumb" since that fateful day he discovered painfully that his theory didn't hold true! Being involved as I am with regulators from time to time I am getting a sense of déjá vu here in terms of potentially putting my own thumb over a barrel with no rational sense as to the outcome, and therefore probably shouldn't do this but anyway here goes.
I attended some years ago a conference in Asia for Regulators. It was an annual event but this one was special, if I recall, because it was their 10th anniversary. I was honoured to have been invited to speak, albeit somewhat surprised, as apparently it was the first time they had a speaker from the industry they were regulating. So there they were, having a meeting "plotting" how best to regulate the banks without actually asking the banks if they had any issues with their proposals. In fact, partly rationally I could actually understand some of that logic. If you asked the banks whether they thought regulation was a good idea they would quite possibly have said "no, don't be silly, we are very good at regulating ourselves so stop interfering". That was before the global financial crisis.
Since then we have had an awful lot of regulation in the industry. Much of it, frankly, needed despite protests from the banks who were not as it happens regulating themselves quite as well as they believed, and where even the excesses were becoming excessive! What did we get as a result - Dodd Frank, Volker Rules, Sarbanes Oxley and heaven knows how many versions thereof to the extent that regulation has now become an industry. And even Regulators themselves seem to try hard to make "refinements" to the various rules so they appear to be more rigorous than the next one in their desire to ensure that nothing gets through the net at all - sadly, not even business!
I was talking to a colleague just today actually following his attendance at a board meeting for a financial services company - his first of this particular institution, and he said "You know, it was very interesting but I am not sure at what point the Board got to talk about business". Fair point, and from other people I speak to around the world, not unusual. Boards today, and particularly those in the financial sector spend most of their time ensuring that what they do is "regulator-proof"! The meticulously produced minutes evidencing challenge, debate, discussion, dissent so that you have dotted all the i's and crossed all the t's. Then the regulator still comes back and says okay, but how do you know this is right or that or that is right, and by the way provide us with names and addresses. To which one is often tempted to say "you know what - here are the keys, go run the Bank yourself"!
It seems to me that our regulators are full of people who are technically brilliant. Seriously bright human beings and certainly with far more intellect and intelligence than I have, but who have never had to run a financial institution from a business and practical viewpoint in their life - or run anything else for that matter. It brings us back to the old debate about the difference between intelligence and common sense. I favour the Merriam Webster definition that says "common sense is defined as sound practical judgment that is independent of specialized knowledge, training, or the like". It goes on to say that intelligence is the “capacity for learning, reasoning, understanding, and similar forms of mental activity". It's sometimes only the "understanding" bit of that definition with which I am at odds.
What we need are regulators who not only have the intelligence to create appropriate regulations that will keep the financial services industry on a safe, productive track but have the common sense to understand that businesses are dynamic, creative and affect our daily lives. We need to create a regulatory formula that is practical and serves all sectors of the community. Regulations, per se, will never be perfect. Life is not perfect and there is an element of risk tolerance - developed over many years - that we should be prepared to accept.
I am afraid that today we live in a world where we are trying to prevent every unpleasant eventuality. Such a utopian life does not exist, but we should try at least to take a practical view, and let the world breathe again.