David Prosser: There is no consensus for regulatory reform

Outlook Behind the scenes, at wonkish conferences around Europe, the nitty-gritty of regulatory reform is slowly being worked out. Three speeches caught the eye yesterday alone: the Bank of England's David Miles argued the new Basel III requirements for banks to hold more capital would have to be raised in future; Hans Hoogervorst, chairman of the International Accounting Standards Board, questioned the fact that banks do not have to count sovereign debt held in their national currency as a risk-weighted asset; and Lord Turner, the chairman of the Financial Services Authority, warned that using regulatory powers to control credit would be very tough.

The common theme is the realisation that while one might think much of the heavy lifting on regulatory reform has been completed since the financial crisis, there is no consensus yet on the all-important detail on which the success of these reforms will stand or fall.

We may also be expecting too much. Mr Miles, for example, thinks the right capital requirements for banks could, in the end, be more than twice as demanding as that currently planned. He hopes investors will accept the lower returns on equity that would imply as reasonable, in the context of fewer crises in the long-term. Let us say he is an optimist. Similarly, Lord Turner warns controlling credit booms may be as much as we can hope for from macro-prudential policy – the work has not been done to prove stimulating credit supply is even possible, at least not in a managed way.

These are technically difficult matters. But the important point to grasp, especially in the context of sovereign debt crises and economic slowdowns where the call is for policymakers to show leadership, is that we are still adjusting to a post-credit crunch environment. Often, it is not so much that there is disagreement on the right answers, but the fact that for some questions there are as yet no answers at all.