Speaking at the London Stock Exchange this morning, Cameron said the Government forced the FSA to obsess about products and procedures while ignoring the banks’ business models.
Cameron said: “This wasn’t light touch regulation. It was just completely the wrong regulation. It missed a central insight into financial markets: that they’re made up of people, not unity of production.”
Cameron said regulation should recognise the psychological levers of boom and bust and said he was pleased that reforms to Basel II and macro-prudential regulation have been adopted in the Turner Review and are on the G20 agenda.
He also called for the Bank of England’s role in regulating debt to be reinstated and said it should have an explicit role in macro-prudential regulation.
He said the Government had to recognise “home-grown” failures in regulation rather than pinpointing the problems in the US housing market as the root of the current crisis.
Defending his party against claims that it is the champion of the free market economy, Cameron said: “People don’t want to abandon markets, they want us to reform markets so they work properly.
“What they want is a sense of order and responsibility brought to the operation of the financial markets.
“People might not follow the minutiae of over-leveraging or short-selling, but they know that the roots of our current crisis lie in recklessness and greed.”
Cameron said creating capitalism with a conscience was a task for the modern Conservative party.
He said: “We are the party of law and order, so we are the party to bring law and order to the financial markets.
“We are the party of social responsibility, so we are the party to bring social responsibility to the financial markets.”