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Time To Call The Regulatory Bluff

People on both sides of the divide are raising the stakes for the massive game of regulatory poker set for the fourth quarter. Senior officials from France and Italy joined Timmy G in calling for meaningful regulatory reforms to protect against the types of "perverse incentives" that led the global economy to assume its current position. But before politicians turn knee-jerk reactions into law, members of the Institute of International Finance made it known that there is another side to forcing banks to ask for a hall pass every time they want to go to bathroom.

Deutsche Bank CEO Josef Ackermann, who also chairs the Institute of International Finance trade group of the world's largest banks, warned in a statement that "official regulatory reforms must be balanced, and the trade-offs involving possibly lower global growth and less job creation need to be carefully considered."

However, the risk of muted economic growth is nothing compared to what another senior member of the IIF believes is in jeopardy here.

Charles Dallara, managing director of the Washington-based IIF, likened the global financial system to a "beautiful tapestry" that could unravel if policy makers pull the wrong thread.

Besides, should the masses really be punished for the actions of a select few?

We are beyond the point where we can allow the entire blame to be laid at our doorstep," Dallara said. "Does anyone really believe the crisis happened because a few bankers failed to manage their risks?"

Quite the opposite- and that is the problem.