Jan 20, 2014

Financial regulation: a hidden gem

Fortunately for financiers, financial regulation is mostly retrospective in nature - that is, it is aimed to fix deficiencies that are evident in hindsight; and almost never anticipatory - meaning that it is not designed to address the areas that have not experienced troubles in the past. Even post-major-crisis regulation barely catches up with financial system development, still leaving vast areas of finance subject to circumvention, innovation, and even deregulation.

Market participants, and in particular shadow banks, are quick to respond to changing regulatory environment. Like lava that spreads rapidly to unoccupied areas, market participants are always on the move into unregulated and loosely regulated areas, perpetually searching for new profit opportunities.