“It was bankers who were not properly regulated that tipped us into the economic crisis which we are still struggling with. I'm not against bankers, no, not really, but they should have been properly regulated.”
Diane Abbott MP, 23 November 2017
“Why did no one see it coming?”, the Queen asked a group of economists about the recession.
Eight months later, and after much debate, Her Majesty got a three-page letter back from the British Academy. It identified many problems including poorly-understood financial instruments, psychological factors, and above all a failure to understand the financial system as a whole.
It had this to say on regulation: “Among the authorities charged with managing these risks, there were difficulties too. Some say that their job should have been ‘to take away the punch bowl when the party was in full swing’. But that assumes that they had the instruments needed to do this. General pressure was for more lax regulation—a light touch. The City of London (and the Financial Services Authority) was praised as a paragon of global financial regulation for this reason.”
So the regulators were doing what they were asked to, which isn’t much comfort.
Anything this complicated has lots of causes but nobody seems to doubt that the regulation wasn’t up to scratch. “There is much to be improved [on regulation]… but not everything is broken” was the best a post-crash report on financial services for the Chancellor could offer.
A review by the Financial Services Authority’s Chairman found that “the crisis revealed fault lines in the global regulation and supervision” of some cross-border firms as well as many other problems.
Even good regulation isn’t enough, according to the regulators. The CEO of the Financial Conduct Authority in a 2015 speech said: “The culture was just as broken as the balance sheet. Hence the succession of scandals that all of us in this room have witnessed. The building blocks of this repair are much more complicated. […] Regulators cannot become the conscience for the financial world.”
This factcheck is part of a roundup of BBC Question Time. Read the roundup.
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