Andy Haldane, chief economist at the Bank of England, once made a speech called ‘The dog and the frisbee’. It should be required reading for anyone in global financial services – especially as a new report by BNY Mellon and PWC reveals a number of unforeseen consequences to new market and regulatory reform.
It’s worth reminding ourselves of Haldane’s argument. He said catching a Frisbee is difficult; it takes many complex and simultaneous calculations. Yet people – and dogs – do it all the time. They do this by keeping it simple; you (or your border collie) just run at a speed that keeps the eyeline to the Frisbee roughly constant.
Catching an economic crisis – the subject of Haldane’s address at Jackson Hole back in 2012 – is also difficult. Watchdogs failed to spot the 2008 crash in time and Haldane argues that the reason they failed was simple – too much complex regulation made timely decision-making impossible. Less financial regulation, he said, may be more.
Since then however, the world’s regulators have gone in the opposite direction. More regulation, more complexity; according to the BNY Mellon and PWC survey, new Basel III and liquidity constraints coupled with regulatory demands for high-quality collateral as security could cause a crisis purely by making this collateral more inaccessible.
Of course the world’s financial system needs control and sensible regulation is a vital element. But as Andy Haldane suggested, when the system becomes too complicated it is possible to lose sight of what we are trying to achieve. And that argument can be extended to how firms communicate with each other and their audiences.
We do simple ideas for complicated businesses – including communications for some of the world’s leading financial firms. It’s good to know that belief in simplicity has such a powerful advocate at the top of the world’s economic system.