Thursday, July 23, 2009

Another day, another regulatory race

John Gapper is writing sensible stuff in the Financial Times this morning. On efforts to beef up regulation in the U.S. and the U.K., he says:

"Given the scale of the crisis we have just endured, and appear to have survived, this is pathetic. If I were a banker, I would be laughing discreetly at the bumbling and misdirected efforts of governments to change my behaviour."

He is exercised about Britain's offshore-steeped Conservative Party, which seems to have backed down from the kind of sensible reform that would see "casino" investment banking separated from "utility" real banking: the stuff that gives me a trustworthy place to park my savings, and reinvests it into real businesses. Many, many, people see this as a very sensible reform - though massive vested interests oppose it. Why have the Conservatives backed down? In two words, regulatory competition.

"His explanation for floating the idea and then dropping it in the Tory “white paper” on financial regulatory reform was that “while there are some value arguments for this approach if implemented at an international level, it would not be feasible or desirable for the UK to impose an absolute separation unilaterally”.

This leaves us precisely where we started . . . the UK and the US fear to clamp down on large banks in case they move from New York to London (or vice-versa) or locate themselves offshore."

It never stops, does it? If you live by the sword -- trying to outdo others in a race to the bottom - you just have to keep dancing, faster and faster. This is not a sustainable development strategy.


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