Cause v. consequence‐based regulation: Basel III v. the Eurocodes
| DOI | https://doi.org/10.1108/13581981111123834 |
| Pages | 111-116 |
| Date | 10 May 2011 |
| Published date | 10 May 2011 |
| Author | Maximilian A. Vermorken,Alphons Th. Vermorken |
| Subject Matter | Accounting & finance |
Cause v. consequence-based
regulation: Basel III v.
the Eurocodes
Maximilian A. Vermorken
QASER Lab, Faculty of Engineering, University College London,
London, UK, and
Alphons Th. Vermorken
Solvay Brussels School of Economics and Management, Brussels, Belgium and
PricewaterhouseCoopers, Brussels, Belgium
Abstract
Purpose – The purpose of this paper is to compare two opposite approaches chosen to regulate an
industry.
Design/methodology/approach – The approach is based on studying the two selected regulation
systems, Basel III and the Eurocodes and identifies how the one system regulates financial institutions
and the other one civil engineering design.
Findings – The paper shows that the financial regulation uses a cause-based approach to regulation,
in which the causes of a crisis are found and controlled. The Eurocodes in civil engineering make no
specific attempt to understand the specific causes of afailure ;however, theyprovide a framework, which
transfers full responsibility onto the designer if the designer decides not to adhere to a set of codes of
practice. It is the trade-off between less regulation and increased responsibility.
Originality/value – Thepaper presents a new way of understanding theimpact and use of regulation
by comparing it to a system which has the same purpose but uses opposite means. It shows how
financial regulation in reality has limitations which are its inherent weakness.
Keywords European legislation, Regulation,Europe, Banking, Civil engineering
Paper type Viewpoint
1. Introduction
On the 19 July 2007, while Wall Street investors were jubilant about the newly reached
historic mark of 14.000 points on the Dow Jones Industrial Average, weariness and
uncertainty set in, in New York and in Tessero. In New York, bankruptcies, chapter
11 filings and redemption halts on the part of mortgage lenders and investment funds,
signalledthe coming crisis.In Tessero, the villagerswere preparing the commemorationof
a dam collapse,22 years earlier, which had ripped through their Italianmountain village.
The two events described above have no relation. Neither their nature, the people
involved nor the consequence of the dam collapse bear any resemblance to what
the financial system of the world was going to witness. Yet, when investigating the
fundamental causes of both disasters, one cannot but help to conclude that the reasons
The current issue and full text archive of this journal is available at
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JEL classification – G28, G01, G21
The authors thank Rudi Vander Vennet for helpful comments and suggestions. The opinions
expressed in this article are solely those of the authors.
Basel III v.
the Eurocodes
111
Journal of Financial Regulation and
Compliance
Vol. 19 No. 2, 2011
pp. 111-116
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981111123834
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