Monday afternoon around 4 p.m. EDT marked one of those rare times in the past several months when it was a pleasure to troll the late-afternoon online business stories.
Two U.S. economists won the Nobel Prize in economic science. Hedge funds suffered their worst quarter in a long time (sorry, it's the Occupy Wall Street-er in me). And the Dow notched its largest daily gain in a month or so (sorry again: if I could magically de-link the market's performance from happiness and daily decision-making – an illogical correlation that causes far too much unhappiness and stifles healthy risk-taking – I would do so in a New York minute).
The Noble award (in economics) coincided with the release of the sort of analysis that the winners, Thomas Sargent of New York University and Christopher Sims of Princeton University, were recognized for: research on the cause and effect of government policies on the economy.
Perhaps Sargent and Sims inspired the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision, which published a report on the costs and benefits of international banking regulations designed, at least in theory, to limit global systemic risk.
In practice, it turns out, these regulations are well worth their cost of compliance as measured by the risk-management benefits they deliver.
The analysis is laced with assumptions (necessarily) and a tad difficult for English majors and risk-management writers to digest without first boning up on scaling factors, lending spreads, bank capital buffers and other financial services argot. Here's the 35-page report.
What strikes me, though, is not the actual calculations, but the fact that the FSB and the Basel Committee have conducted a cost-benefit analysis of regulations. That's a strong and promising move the SEC and other U.S. regulators might consider emulating.
It's easy to make general claims about the negative effect of regulatory compliance in risk-taking and competitiveness; it's quote another – and more convincing – thing to make a claim for or against regulations while providing the numbers to support your argument.