Monday, July 20, 2009

Whatever happened to checks and balances?

In the UK, as in the US, the current mood is for renewed centralisation.

This too is a kind of bubble.

I see in this morning's FT that the Tories (the UK's Conservative Party) would like to abandon Britain’s tripartite system of financial regulation and transfer all the powers to the Bank of England.

Though the intention is noble, and the instinct is more sweeping, this is in substance very similar to the Obama proposals in the USA (no surprise to see the Tories following the US Democratic Party now!).

However, systemic risk does not come only from the banking sector, or even from financial institutions.

Systemic risk comes from the system as a whole :)

Though the immediate cause may come from a particular sector of course....

In the Asian crisis (which sank just about all the Asian Tigers, so completely that they still have not properly recovered!), the primary cause was political....

That is why it is best to keep the wider issue of systemic risk separate from the narrow technical questions of banking regulation as well as from the broader questions of financial services regulation.

I stand by my suggestions for a Global Systemic Risk Regulator, made in my piece in the New York Times on 30 June:

See too the earlier piece, also published by the DealBook section of the NYT, evaluating the Obama proposals as a whole, which is at: Sphere: Related Content

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