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Cooper warns against regulatory overkill

Chief secretary to the Treasury Yvette Cooper has urged that current market turmoil should not provoke a move to rules-based regulation while admitting that regulators need to understand risks better.

Speaking at a fringe meet- ing at the Labour conference in Manchester, Cooper said a heavy-handed response to the crisis of past weeks was “not on”.

She said: “I think it would be a counter-productive response to the problems we face now and would prevent us from growing out of the difficulties we face and from having long-term investment, innovation and effective and efficient functioning capital markets right across the globe.”

She admitted that regulators had not fully understood the systemic risks posed by the inter-relationship between the UK and US banking systems and had failed to appreciate the risks posed by the US sub-prime meltdown.

Cooper said: “I think that nobody anticipated how far that risk would spread right across the world and the nat-ure of the inter-connected global systemic risks that could be created by the way in which the securitisation markets and credit derivative markets had worked.

“Banks did not understand them, credit rating agencies did not understand them, so perhaps it is not surprising that the regulators did not fully understand them either.”

She argued that the smoothness of the Lloyds TSB takeover of HBOS was evidence of how the tripartite authorities had worked together to plan for such eventualities.

Cooper said: “The reason that things were able to happen so fast did reflect what had been an awful lot of contingency planning and intense work between the FSA, the Bank of England and Treasury officials.”

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