Tags: Stiglitz | Global | Bank | Regulation

Stiglitz: We Need Global Bank Regulation

By Dan Weil   |   Thursday, 04 Feb 2010 09:08 AM

Nobel laureate economist Joseph Stiglitz says banks need a global regulatory regime.

That’s because without one, banks will just regulation-shop, locating in countries that have the most lax regulatory rules, he told CNBC.

"If there was a broad consensus, . . . that could stop this race to the bottom which got us into the mess we're in now," Stiglitz said.

And what needs to be regulated?

“They (banks) have incentives for excessive risk taking, and they have incentives not to understand risk,” he said.

That’s because excessive risk can create higher salaries for bank executives in the short term.

“Given that, it’s very important to have restraints,” Stiglitz said.

“One of the restraints is don’t allow them to have too much leverage. It’s particularly a big problem with the too big to fail banks, because when they undertake excessive risk, including excessive leverage, it’s a one-sided bet.”

Bottom line for these banks, Stiglitz says: “When they win, they walk off with the profits. When they lose, the taxpayer picks up the losses.”

Stiglitz certainly isn’t the first expert to call for global regulation of banks.

Hedge fund doyen George Soros told The New York Times two years ago, “We need a global sheriff.”

And it’s not just Americans who feel that way.

“If everyone does their own thing, it will achieve absolutely nothing,” British Chancellor of the Exchequer Alistair Darling told The Sunday Times of London.

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Nobel laureate economist Joseph Stiglitz says banks need a global regulatory regime. That s because without one, banks will just regulation-shop, locating in countries that have the most lax regulatory rules, he told CNBC. If there was a broad consensus, . . . that...
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