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In a financial bubble, assets are overpriced and credit overextended. Today, lawmakers and banking regulators are inflating another kind of bubble by overcompensating for past sins, says Richard J. Parsons.

In Broke: America's Banking System, recently published by the Risk Management Association, Parsons doles out plenty of criticism for the industry. He admonishes fellow bankers to "understand our duty to society" and calls for higher standards. That includes licensing and certification for certain banking jobs and boards composed of banking and financial market experts, rather than community leaders. Toward the end of the book, he turns his sights on regulators and lawmakers.

"A growing number of community and regional bankers now complain that the flood of new public policies and intensified regulatory scrutiny are bringing unintended consequences," writes Parsons, who worked at Bank of America (BAC) for three decades. "Rather than actually make the system safer, the current bubble of policies and regulatory oversight runs the risk of creating the newest external event risk."Following are five risks that Parsons warns could flare up due to what he calls the "regulatory bubble."

(Image: Fotolia)


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