The problem with calling for more regulation of the financial sector

The TSC’s criticisms were not reserved solely to Barclays, which has already responded by replacing the chairman and promising to change the old culture of risk-taking and “pushing the limits”.

The committee attacked the FSA for failing “to appreciate the significance of rumours relating to the rigging of Libor”. The watchdog is conducting an investigation into its shortcomings, the findings of which the TSC said should be made public.

The Bank of England, too, came under scrutiny. “The evidence suggests that the Bank was aware of the incentive for banks to behave dishonestly, yet did not think that dishonesty was occurring. Nor did it appear to have asked the FSA to check,” the TSC said. “This suggests a naivety. They were certainly relatively inactive.”

Who, precisely, is going to do this extra regulation better and how?

\”Our peeps with more money\” is not an answer.

My own suggestion is that the place definitely needs different regulation. That\’s not the same as \”more\” of course.

But I would be interested in hearing from the more regulation crowd. Given that the regulators failed last time around what makes you think it will be any different in the future?

5 thoughts on “The problem with calling for more regulation of the financial sector”

  1. Hmm. It would perhaps be helpful if we had regulators that bothered to enforce the existing regulation, of course.

  2. Why do we need any regulation at all? Personally, I would love a new set of banks to be set up that are specifically NOT regulated by the FSA, and are not back-stopped by taxpayers (i.e. no bailouts ever).

    Whatever these new entities end up being called, I would use them if they were open, transparent and fully audited on a regular basis.

    No regulation required – just the full application of the rule of (common) law…

  3. @Manu – so you would get rid of the deposit insurance scheme altogether ? Even if the bank pays the government an annual premium for it ?

  4. @Fred – yes, I would. Why should taxpayers have to insure other people against bank default of their accounts? It’s just a recipe for moral hazard all round.

    If you want to insure yourself against this risk then you should take out your own policy, or simply spread your assets around numerous types of investments…

    To your second question, how exactly would the bank paying the government help things?! Would the government put all of this money into a ring-fenced insurance fund, only ever to be used in the case of a bank default? We both know the answer to that, so no, I would like to see the Government and all of the state “regulatory” bodies removed completely from any role in looking after my money.

  5. Fred

    I’m with Manu on this one. We have massively shot ourselves in the foot with deposit insurance. We now have millions of people who believe they have the right to receive a positive return on their savings while accepting zero risk. We now have hundreds of commercial organisations that believe they can do what they like with other people’s money because those people will not face any losses. It’s a moral hazard nightmare.

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