On its own, the Act runs to 848 pages – more than 20 Glass-Steagalls. That is just the starting point. For implementation, Dodd-Frank requires an additional almost 400 pieces of detailed rule-making by a variety of US regulatory agencies. As of July this year, two years after the enactment of Dodd-Frank, a third of the required rules had been finalised. Those completed have added a further 8,843 pages to the rulebook. At this rate, once completed Dodd-Frank could comprise 30,000 pages of rulemaking. That is roughly a thousand times larger than its closest legislative cousin, Glass-Steagall. Dodd-Frank makes Glass-Steagall look like throat-clearing. The situation in Europe, while different in detail, is similar in substance. Since the crisis, more than a dozen European regulatory directives or regulations have been initiated, or reviewed, covering capital requirements, crisis management, deposit guarantees, short-selling, market abuse, investment funds, alternative investments, venture capital, OTC derivatives, markets in financial instruments, insurance, auditing and credit ratings. 8  BIS central bankers’ speeches  These are at various stages of completion. So far, they cover over 2000 pages. That total is set to increase dramatically as primary legislation is translated into detailed rule-writing. For example, were that rule-making to occur on a US scale, Europe’s regulatory blanket would cover over 60,000 pages. It would make Dodd-Frank look like a warm-up Act. (c)  The regulatory response  The density and complexity of financial regulation has had predictable consequences for the scale and scope of regulatory resources.

Measures of risk-weighted capital are statistically insignificant, while the leverage ratio is significant at the 1% level. Contrary to the risk-sensitivity doctrine, less appears to have offered more. These results are robust to the inclusion of a broader set of macro factors, such as GDP growth and credit (Table 3). Using different methods and samples, other studies support the predictive superiority, or at least equivalence, of leverage over capital ratios (IMF (2009), Demirguc-Kunt et al (2010), Estrella et al (2000)). A second source of regulatory complexity is the definition of capital. Table 4 considers the predictive performance of a selection of measures of capital for a sub-set of banks. Two key conclusions emerge. First, simpler measures of accounting capital based on equity capital (core Tier 1) outperform broader, more complex, measures. Second, simple market-based measures of banks’ equity dominate accounting measures in their crisis-predictive performance. Simple, once again, beats complex. Put another way, consider a straight horse-race between the most complex measure of banks’ capital position (the Basel Tier 1 ratio) and the simplest (the market value of equity relative to unweighted assets). The explanatory power of the simple measure is about 10 times greater than the complex measure. However well they perform in theory or in sample, complex capital rules do not appear to have performed well in practice and out-of-sample. That is a sobering message for the architects of the Tower of Basel. (5)  Predicting bank failure – simple or complex?