Oct. 7 (Bloomberg) -- Morgan Stanley Chief Executive John Mack’s call for a global “uber-regulator” to oversee the international financial system represents a dream come true for bankers and a nightmare for everyone else.

What simpler way for banks to again capture their overseers than to combine watchdogs into an out-of-reach, unaccountable and easily influenced body. Perhaps it could even have its own squad of black helicopters.

Mack’s proposal for a global regulator, made during an interview last week with Bloomberg Television, comes as banks are trying to shape, or stall, efforts at financial reform. Any attempt to harmonize approaches among countries almost ensures additional delay, helping banks and Wall Street maintain the status quo.

Multilateral regulatory solutions also increase the chance of hopelessly politicizing the process. That would benefit bankers, who deploy armies of lobbyists and dole out big campaign contributions.

Just look at some of the horse trading that went on at last month’s Group of 20 meetings in Pittsburgh. The Obama administration swept aside longstanding concerns voiced by the Federal Deposit Insurance Corp. about new guidelines for calculating bank capital. This was seemingly done to secure European agreement for the administration’s own bank-reform proposals.

Cost of Agreement

The result: the U.S. signed on to a G-20 statement that calls for nations to establish so-called Basel II rules for bank capital by 2011. These rules, already in use by European banks, depend highly on risk weightings for bank assets that are determined by bank executives and ratings companies.

In other words, two groups whose prudent judgment was nonexistent during the housing and credit bubbles will have even more sway over the safety of banks. This is all in the name of reaching an international agreement.

National regulators obviously did a terrible job in the run-up to the financial crisis. An audit of the Troubled Assets Relief Program released earlier this week, for example, found that the U.S. government misled the public about the health of banks receiving bailout funds.

A more global approach won’t stop such misdeeds from occurring again, and it may only worsen matters. As it is, regulators aren’t directly accountable to voters. On an international level, they would be even further removed, leaving them greater incentives to fudge reality in the hope of quelling concerns about the banking system.

Need For Independence

Nor would an international regulatory system work better if it was headed by central bankers. Mack suggested that the U.S. Federal Reserve and its peers may be naturals for the role.

For starters, central banks, the Fed chief among them, were woeful in policing risks that led to the credit crunch. And while they are ostensibly independent, it’s not clear how long that will last.

Putting central banks atop some global regulatory apparatus may actually hasten attempts to make them political beasts. It also gives them the upper hand in dealings with other bank regulators who may be more inclined to protect taxpayer, rather than banker, interests.

This isn’t to say that international cooperation isn’t beneficial. No one country has a lock on the “right” approach to regulation. Indeed, sharing information is a must when banks and markets know no borders.

Enforcement Is Key

At the end of the day, though, any set of rules is only as good as the enforcement behind them. And the reality is that there is no global, financial enforcement capability. Nor will there ever be one, given underlying differences in countries’ legal systems.

Also, countries don’t hold the same view of financial markets. Are they meant to serve investors, companies, governments or some combination of them?

There is no way to come up with a common view, which means that any global regulatory body would be built upon a flawed foundation.

That’s the danger facing another global regulatory effort, the creation of a single, worldwide accounting language. The G- 20 leaders called for this to happen by the end of 2011. Yet the move to international accounting rules shows how difficult global arrangements can be.

Consider a current International Accounting Standards Board project on financial instruments. As part of this, the board is proposing that companies won’t have to show changes in their income statement of some stock-market holdings, if they are deemed to be “strategic.”

This provision would seem strange to investors and regulators in many countries. Yet it reflects that Japanese companies have large, cross-shareholdings, and they want accounting rules to reflect that.

Compromises like this may be needed to make international organizations work. The danger is there ends up being too many of them, creating ineffectual regulation.

Even if markets are global, smart regulation has to start at home.

(David Reilly is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Reilly at dreilly14@bloomberg.net

Last Updated: October 6, 2009 21:00 EDT