VIENNA (MNI) – ECB Governing Council member Ewald Nowotny
highlighted Monday the limits of financial regulation, warning investors
that it could not pretend to eliminate all risks.
“I think it is necessary not only to discuss the possibility but
also the limits of regulation,” the president of the Austrian National
Bank told a conference here.
Financial market stability and regulation go hand in hand, and
financial developments have made “very clear the greater need for
regulation,” Nowotny said.
“But we should avoid the illusion that all market risks can
controlled by ever more intensive regulation,” he cautioned.
Investors who seek out “exotic” products have no right to complain
to regulatory authorities afterward when things do not go well, he
argued.
“I don’t want to be misunderstood,” he said. “After a period of
deregulation that we had in some countries, we have the necessity to
reregulate [markets]. But it is important to consider them carefully.”
Nowotny warned against an “arms race” between surveillance
authorities and the markets, noting that “a whole army” of some 15,000
regulators is already deployed in the Eurozone and Britain.
“I think it is more important to consider the structural
questions,” he said. “Are these measures even practical to implement?”
“I see the practical possibilities to control head-funds as rather
limited,” he said. “More important is the necessity to differentiate
through higher capital securitization, to make the financing of hedge
funds much more difficult.”
Macro-prudential risk boards can also make an important
contribution to financial stability, Nowotny noted. They should develop
regulations that member states will have to comply with or at least
explain deviations. Sovereign debt levels should be among the criteria.
In addition, banks’ balance sheets should clearly reflect all risks
that banks are carrying, he said.
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