mojmir hampl : financial strangulation? article by mr mojmir hampl, vice governor of the czech national bank and a member of the eu's economic and financial committee, published in the wall street journal, prague, 2 december 2008. * * * don't rush to change all the fire regulations while the actual fire is still raging. the reaction to the financial crisis should not be worse than the crisis itself. this is the mantra i've been repeating to myself – while shaking my head in disbelief at many ideas surfacing in the european and global debate on the " postcrisis " shape of the financial universe. the list of proposals that have appeared on the table so far is long and ranges from attempts to ban short - selling and regulate credit default swap markets to toughening up supervision of credit rating agencies, hedge funds or the whole sphere of structured financing. capping executive pay – the easiest target for anyone searching for cheap political capital – is of course included. so are state efforts to micromanage banks, such as french attempts to set numerical targets for lending by recapitalized banks. for many people, these measures are the tolerable or even necessary by - products of fixing the crisis. at the top of the list, then, looms a concept of a brand - new, omnipotent, global ( or at least european ) super - regulator that would undoubtedly do everything better next time. in general, most of these ideas are heading in the same direction : toward greater regulation and centralization of the financial sector, and toward less competition and a greater publicsector presence in the financial industry from now on. these thoughts – often presented in soft " eurospeak " so as not to sound too alarming – seem as if their proponents thought them up long ago and were just waiting for a good opportunity to unveil them as miracle cures for all the financial world's ills and woes. it is as if we hadn't all known for years that unfortunately – in the world in general, and the financial one in particular – there are no such things as perfect rules, perfect regulation or, above all, perfect certainty. it is as if we'd forgotten that competition, rivalry, profit opportunities and staff motivation are not the spawn of the devil but do a lot of good. more important, the private part of the financial universe is being presented as a self - evident culprit of

than 200 % in others ; in the degree of local market concentration ; etc. there are many more examples, some of them influenced by long - term developments, some by entrenched behavioural differences and habits. bis central bankers ’ speeches to apply – or even try to apply – a federal or pan - european approach to such a diversified financial system requires, in my eyes, a key precondition : to have a functioning european federation in the first place. if that is not possible then we should not try to create half - baked pan - european solutions here in the area of banking – an area which is arguably more sensitive in many aspects than that of fiscal policy and fiscal transfers. if we are not careful enough, we risk repeating the difficulties of the single currency project. the euro is a currency without a state. this means nobody knows who should pay what to whom in bad times. it is for good times only. and we now all know very well that this is the biggest shortcoming of the whole project. some believe that cross - border integration is good per se, without any conditions. i tend to believe – not least because of the current crisis – that cross - border integration of national financial systems is welcome only if each of the national systems alone is and can be sufficiently sound and stable. that ’ s why we at the czech national bank are so nervous about this tendency to continue separating the powers of supervisory and regulatory authorities from their responsibilities in the area of financial regulation. these powers are gradually shifting in small steps towards those who have no direct responsibility and no pots of money to pay should things go wrong in the future. and such a system is not sustainable for future bad times. i believe this is a concern shared by policy - makers not only in our country, but also in other eu countries ( such as here in poland ) and i hope that the coalition of like - minded states has the potential to grow over time. so let me repeat : until we have a full - fledged eu federation we should not build a half - baked one in the area of eu banking. and i strongly advise paying attention to the rules being prepared by the european commission ( for instance the crisis and resolution mechanisms ), which have the potential to be out of line with this proposed approach. bis central bankers ’ speeches