US Treasury secretary Tim Geithner says the tragic ending to the UK’s experiment with light touch regulation should serve as a warning to countries currently overhauling their regulatory regimes.
According to a report in the Guardian, at a speech at the International Monetary Conference in Atlanta he urged countries to avoid a “race to the bottom” to take advantage of the tightening of regulatory rules in the US.
He said: “The United Kingdom’s experiment in a strategy of light touch regulation to attract business to London from New York and Frankfurt ended tragically. That should be a cautionary note for other countries deciding whether to try and take advantage of the rise in standards in the United States.”
Tax payers ended up pouring £65bn into Royal bank of Scotland and Lloyds Banking Group as well as nationalising Northern Rock.
His comments will be regarded as aimed at the fast-growing emerging Asian economies.
The UK Government is now restructuring the regulatory regime replacing the FSA with the Prudential Regulation Authority and the Financial Conduct Authority with the Financial Policy Committee taking responsibility for stability of the financial system.
Geithner warned of the risk of regulatory arbitrage and to financial stability if global rules like the Basel accords which set capital levels for banks were not taken up around the world.
He said: “As we act to contain risk in the US, we want to minimise the chances that it simply moves to other markets around the world.”