We will shortly release to the public a new FedFin white paper that catalogs an array of emerging systemic risks that we find can often be attributed to the post-crisis regulatory rewrite. Let me make it as clear as I can: this paper is not about withdrawing the rules – some of them should be a lot tougher. Instead, it’s a plea to policy-makers to make up their mind about their top-priority goals so that the rulebook implements them instead of growing ever larger and more contradictory. Right now, each policy action causes a market reaction for which the new framework is still all too often unprepared eight years after the crisis. As we show, more than a few of these market reactions are very, very troubling.

As we worked on this paper, I made my own list of all of the goals policy-makers are pursuing. A shortened list follows:

  • Make big banks smaller and safer.
  • Keep big banks critical engines of financial intermediation and stewards of financial-market infrastructure.
  • Reduce community-bank burden.
  • Make regional banks as safe and sound as the very biggest banks.
  • Regulate the “shadows”.
  • Promote financial-market innovation.
  • Ensure non-banks supply liquidity, support capital formation, increase credit availability.
  • Regulate non-bank providers of liability products, especially cash equivalents.
  • Limit bank reliance on short-term wholesale funding.
  • Increase the protections afforded to insured deposits.
  • Prevent cross-border systemic risk.
  • Protect host-country financial operations.
  • Limit central-bank liquidity exposure.
  • Ensure central banks can support financial stability, including threats to it from nonbanks.
  • Ensure operational resilience.
  • Mandate an array of costly new governance standards.
  • End taxpayer bail-outs.
  • Ensure taxpayers are on stand-by just in case.
  • Require lots of capital to ensure solvency.
  • Require lots of liquidity to ensure liquidity.
  • Require lots of stress testing to ensure both solvency and liquidity, at least at big banks.
  • Impose additional debt/equity buffers just in case.
  • De-risk for some clients.
  • Re-risk for others.

And, so it goes. All of these objectives are in one sense great. Each on its own would be hugely better than the pre-crisis framework. But, there’s simply no way all of these goals can be executed at the same time. Trying to do so distorts markets and, as a result, makes them a lot riskier for all the good intentions behind each of the new rules.