BIS: Financial Products Should Be Regulated Like Drugs

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The Bank for International Settlements (BIS), a 55-member organization of central banks, announced today that “financial products should be treated like medicines,” according to Reuters. More:

The BIS was alarmed by how a collapse in the value of opaque and complex securitised products propelled the world’s financial system into crisis. It said in its annual report all financial products should be registered like medicines.

The safest instruments would be available to everyone, a second tier only to people with authorization, like prescription drugs, and a third tier to a limited number of pre-screened individuals and institutions, like experimental drugs are. A final tier would be securities deemed illegal.

“Such a registration and certification system creates transparency and enhances safety … This will mean that issuers bear increased responsibility for the risk assessment of their products,” the BIS said.

The BIS also said that while governments have moved quickly to support their economies, they have not done enough to remove problem assets from banks’ balance sheets. “A significant risk is therefore that the current stimulus will lead only to a temporary pickup in growth, followed by protracted stagnation,” it said.

I imagine that the same individuals and organizations who can pay their way into certain financial products will be able to acquire the right “prescriptions” if a program like this were to pass. The crucial difference would be a power transfer from financial institutions to governments. The BIS’s wish to rate financial products in this way is mostly self-interested.