ADVANTAGES OF SIMPLER FINANCIAL REGULATION.

ADVANTAGES OF SIMPLER FINANCIAL REGULATION. I posted here about Gillian Tett’s two arguments against the complexity of the Dodd-Frank Act—first, that investors and bankers will have difficulty figuring out what the law means and, second, that complexity will “play into the hands of the banks” because of their ability to find and exploit loopholes. Andrew Haldane makes the additional argument that simpler measures are better predictors of financial events than more complex ones. He provides some empirical support for this, running a comparison which shows that: “For a set of the world’s most complex banks, simple-weighted measures appear to have greater pre-crisis predictive power [of bank failures] than the complicated Basel II risk-weighted capital ratios.” Haldane also argues that simple rules of thumb have been more successful than complex models in other areas, such as diagnosing heart attacks and locating serial killers.