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September 29, 2016

WSJ: U.S. Regulators the Source of ‘Systemic Financial Risk’

Federal regulators are the “source” of systemic financial risk, writes the Wall Street Journal editorial board, using as an example the “U.S. assault on Deutsche Bank that has tanked European bank shares this week.”

Deutsche Bank’s share price has fallen by about 20% since the U.S. Justice Department’s announcement that it is seeking a $14 billion fine from the bank over allegations involving the sale of mortgage-backed securities between 2005-2007. That amount is well beyond what the bank can afford to pay.

“The huge fines rest on a dubious theory that government prosecutors know better than investors how assets ought to have been priced in a market mania 10 years ago,” notes the editorial. “This is the latest morality tale in modern systemic risk. Government caprice has become a major risk, and maybe the major risk, to the global financial system.”

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