The banking regulators got it wrong. Therefore the banking regulators should have more power.

The problem with his argument is not that it\’s even right or wrong. It\’s that it is irrelevant. The tools that were available for regulation were sufficient if anyone wanted to use them. Adding more tools for regulation wouldn\’t change the desire to use them.

Yes, the banking regulators did get it wrong, didn\’t see the bubble clearly enough. But that regulators get things wrong is not an argument in favour of giving them more tools.

To put it another way, why give more power to people you know get things wrong?

And no, it isn\’t a good argument to then say but if they had more power they wouldn\’t get it wrong. That\’s to walk down (only the very first baby steps of course) the Stalinist path where the failures of basic policy get made up for by being ever more beastly about the imposition of state policy.

The answer, if there is an answer at all, is to try and find a system by which it doesn\’t matter if the regulators are wrong. Where the system itself becomes self-correcting without the requirement for the purity of bureaucratic decision making.

We do know where this miracle is to be found to: it\’s called a market system. Sure, banking is different because of the confidence issue but our aim should be to produce as close as we can get to a market based system given that confidence constraint.

Which pretty much means getting rid of too big to fail and then letting failure in the market become the limiting constraint of bank actions.

And the real reason we need to do this is, well, is where do we find those regulators who are never wrong? The BoE, FSA and all\’s behaviour in recent years does not show is that that is easy: or even possible. Willy\’s policy suggestions over the years make it seem inconceivable that he knows either….

6 thoughts on “Willy today”

  1. So Much For Subtlety

    I think the answers people get depend on the place where they start. In Tim Worstall’s case it is clearly shaped by being on the receiving end of these regulations. But in Little Willy’s case I think he thinks that if he was in charge this would not have happened. His starting point is the assumption that he is one of the regulating class, not one of the regulated. So he starts from the position that people like him are in charge (or need to be put in charge). So naturally the only response to any problem is to give people like him more power.

    What he needs is to get out of the Oxbridge-NGO-Quango ghetto and meet real people and understand their real world problems. But he won’t. Unfortunately they are all like that these days. Dave and Clegg too. Miliband would be even worse. The habitual and incurable deformation of the bureaucratic character.

  2. Crikey. Willy’s stupidity knows no bounds.
    He doesn’t seem to realise 1) we have too much private debt already 2) we want banks to reduce risks, not increase them 3) varying reserve requirements wd make no diff to bank lending 4) replacing private with public funding is disguised bailout 5) govt guaranteeing loans to high-risk ventures is socialisation of risks i.e. yet more bank subsidy/implicit bailout. Or if he does understand these and STILL recommends that govt guarantees bank lending to SMEs, underwrites public infrastructure investment and tinkers with bank liquidity, then he is not stupid, he’s barking.

  3. Brown set up a tripartite system whereby the Treasury, the FSA and the BoE were all taked with some aspect of regulation.

    But the shit still happened.

    Since tripling the number of regulators and giving them more power failed, you sort of doubt that 5 or 7 or 28 regulators, all with yet more extensive powers, would have worked.

  4. Plus Brown’s method meant that things fell between the cracks or one regulator wouldn’t know what the other regulators were doing potentially leading to conflicts.

  5. Surely it was Brown’ very tripartate system which CAUSED the failure in regulation ?

    I don’t have figures, but while the BoE alone were in charge we had no or very rare bank collapses. Once Brown tripled the regulators, which would have had to mean more box-ticking rather than detailed knowledge based on long experience, the mis-regulation was bound to happen sooner or later.

    I once read the BoE would step in behind the scenes when they smelled something funny, and would persuade a change of behaviour by their sheer expertise.

    Noses are far better than boxes.

    Alan Douglas

  6. Frances Coppola


    Erm, BCCI?

    My view is that if you want to regulate a system, you regulate it end-to-end. That implies a single regulator, not multiple regulators each responsible for a bit of the system. In the US there are not only multiple regulators but they compete with each other, and the regulated institutions can choose which regulator they want. I don’t think it’s any accident that the US has more frequent and worse financial crises than anywhere else – it has heaps of regulation but its regulators are fragmented and their coverage patchy, and there are huge areas of the US financial system that are completely unregulated.

    So I agree with the general view on this thread that creating three UK regulators was a catastrophically bad decision. But hey, it was Gordon Broon – what were we expecting? I can only think of one good decision he made as Chancellor, and that was NOT to go into the Euro.

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