Discussion of The Sub-prime Crisis: Causal Distortions and Regulatory Reform

Alas, to a prudential regulator, the paper reads as an ‘ode to futility’! Prudential regulators, we are told, are unable to predict future asset prices and volatility, are underpaid and under-resourced, and are unable to understand the inner workings of complex fi nancial institutions. The paper is also critical of regulatory approaches to capital adequacy, particularly the new Basel II Framework. And yet, the paper looks to regulatory solutions to the sub-prime crisis and even gives a plug to Australia’s ‘twin peaks’ regulatory arrangements.