UK: The Silliness Of Over-Regulation

The title may be a bit hard, but Lord Turner has long history with New Labour. He has issued two previous reports, both of limited effect in the long-term.

Actually there is some sense (e.g. more thorough and consistent approach to audits) in the huge report published Wednesday, but I also find some logical inconsistencies in the report.

Most of the regulations for banks after all needed to be put in place ages ago. The problems they seek to solve have been solved by the market. Assets are now marked down, some banks have failed, mortgages are not being handed out willy nilly. So much of the prescription is to fight the last war, as is usually the case with these things.

However, what is missing is the FSA Elephant in the Room. Why should the FSA regulate anything again, it has proved a failed organisation in this crisis, so too has the Bank of England in many ways. The organisations need to be merged. The BOE needs the FSA’s staff and insight, the FSA needs access to the BOE boffins who can see the patterns in money markets etc.

None of this is addressed, for this would be critical of G. Brown and his lame duck Government. Brown’s hedge fund friends, source of so much funding and of course Lord Myners, also get off lightly. A nice populist attack on bonuses. This is a very political report.

One last point I wanted to make is on the silliness of over-regulation. Example A is the suggestion that mortgage lending should be strictly monitored, perhaps even with limits on the multiples that people can borrow. Why is this needed? As an answer to the world where lending was too lax, but this world was caused by BOE interest rates being held too low, not by the banks. When rates went up and credit became tighter, banks reduced the criteria. Now we have a very tough market to get a mortgage in, with strict lending criteria.

Where is this sudden need for more regulation? The state does not need to do everything, indeed generally what it does it does badly. I hope the BOE and FSA look closely at monetary policy in the future, that is the way to stop asset bubbles. Little mention of that.

(hat-tip for graphic to Thisislondon.co.uk)

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