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Oec. Magazin

One expert on trust in banking is Jean-Charles Rochet, Professor in Banking at the University of Zurich. He started thinking harder about regu- lation – about which policies work best, when and why – amid the upheavals of the international financial system and their aftermath. For a long time, Rochet believed in free mar- ket competition regulated by benevolent au- thorities. The crux was to find the right balance between markets, good at innovation, and gov- ernments, which can tame excessive market power and avoid the creation of monopolies and self-interests.He hoped the repercussions from the crisis would generate a collective response by academia, governments and regulators to find a solution. But this has not happened. Indeed, he fears regulation has «failed» and changes are now urgently necessary. «We don’t need more layers of regulation,» he stresses. «What we need is better regulation.» UZH’s Priority Research Program Finding better ways for banks and financial markets to avoid another meltdown is one of several topics being tackled by the University of Zurich’s «Finance and Financial Markets» re- search priority program. As the university itself notes, the global financial crisis has triggered major political debate on the need for stricter financial market regulation. Given Switzerland’s prominence in world finance, the matter is of significance not just to the country in general, but to Zurich as a financial center in particular. The program, which started in January 2013, is looking very closely at reform and regulatory initiatives – especially those regarding the home market. Scholars are examining existing regula- tory concepts and analyzing them both in terms of their historical development, and in regard to international policies. The research extends to national and international calls for additional, or overlapping, rules, as well as regulatory pro- posals still in the pipeline or under discussion. Such interdisciplinary projects aim to help solve some of the financial community’s biggest challenges – and strengthen, in the process, the University of Zurich’s reputation as a knowledge and research center in finance. Indeed, the Finan- cial Market Regulation priority program is just one of 12 different areas identified by the uni- versity to strengthen scholarship and create and promote academic networks in selected research areas. The programs, which are instrumental in promoting the academic career of junior scholars, build on research expertise already present here, and allow Zurich to contribute actively to the advancement of knowledge in areas of research beneficial to society. «Markets have become overly complex and industry experts are called on to guide policy decisions,» says Rochet, warming to the theme. But these experts tend to be «captured» by private interests, constantly working under pressure to deliver results confirming what the industry does, he adds. «There is no such thing as an in- dependent expert.» Rochet cites the PhD job mar- ket at US business schools: «If a candidate has a job market paper criticizing what the industry does, he or she has very little chance of landing a top job.» Politicians also respond to indust- ry lobbying. In a democracy, politicians are sup- posed to act in the interest of everyone, but that doesn’t always happen, Rochet regrets. «When politicians act in the interests of powerful mino- rities, we are basically seeing the failure of democracy.» Other Academics at Work He is not the only academic raising such issues. In 2003, Professors Raghuram Rajan and Luigi Regulation: better, not more Trust, as the popular saying goes, is like an eraser: it grows smaller and smaller with every mistake.The same is true of finance,as demonstrated by the decreasing public confidence in banks after their and regulators’mistakes in the run up to the 2007-8 crisis. Miret Padovani 16 Oec. Juni 2014 FOKUS