Monday, March 31, 2008

More red tape

The latest idea about how to secure the financial system is to set up UK-US"supervisory colleges" to oversee banks and financial institutions with significant cross-border activity and a working group has been set up to investigate the mechanics. My gut reaction to this is scepticism. In the old days when the Bank of England had sole responsibility for regulating the banks, it made sure it was cognisant of the banks' financial ratios and could efficiently resolve any problems arising. When the banking responsibility was split by Gordon Brown as Chancellor in 1997 between the Bank and the FSA, the FSA was not nearly as stringent a regulator. As it admitted in its report last week, it only met executives from Northern Rock face to face six times in the 2 years before it collapsed. Banks operate effectively if they have clear guidelines and strong relationship with a regulator which has knowledge about their whole range of their activities including credit and equity derivatives and the risks associated with those exposures. Having another regulator on top, which is half British and half American is rather like having European law overruling our own judges' decisions. It muddies the waters, brings into the spotlight the differences in law and accounting between the UK and the US, costs taxpayers money and increases the amount of red tape for financial institutions to deal with whilst not providing any real assurance that it would be more capable of spotting problems than the national regulators.

2 Comments:

Blogger Welshcakes Limoncello said...

I know very little about high finance but can see that you are talking sense here, WW.

1:29 p.m.  
Blogger Ellee Seymour said...

I'm not hot on finances either, but always enjoy reading your reports on this topic.

4:12 p.m.  

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