A Bold Plan to End ‘Complexity Risk’

By Donna Borak

Often the best approach is the simplest. That’s something U.S. regulators — overtaxed by implementing Dodd-Frank and Basel III — should consider as they release hundreds of thousands of pages of new regulations, according to a provocative new paper from Karen Shaw Petrou, a managing partner at Federal Financial Analytics Inc. Petrou is hardly a new critic when it comes to the financial reform effort Congress passed in July 2010 and new capital and liquidity rules under Basel III. But rather than simply criticize, she is seeking to offer solutions that policymakers could use in the near term to eliminate “complexity risk,” the threat to the system posed by the seemingly endless piling on of more rules and regulations. “You can’t beat something with nothing,” Petrou says in a sit-down interview with American Banker. “It’s frustrating for me — analytically, to just keep saying [to regulators], ‘This is wrong with that. This is wrong with that. This is wrong with that.'”