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US uses UK ‘light touch’ regulation as warning

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.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Well done the USA. AT least you can rely on them to cut through the financial services B******T !!!!

  2. Nice that the credit crisis that started in the US and then mover around the World is not mentioned, any other history lookig to be re-written, will Obama become a different colour in the US History lessons!?

  3. So the gloabl banking crisis wasn’t caused by sub prime mortgages in the US and the US Rating Agencies that through some financial illusion made these sub-prime mortgages grade A investments nor the collapse of Lehman brothers or Fannie May and Freddie Mac?

  4. Its a surprising thing for him to say. I don’t think any countries’ regulation was successful at averting the financial crisis, least of all the very prescriptive form of box ticking which existed in the US.

  5. SIMON MANSELL 7th June 2011 at 4:18 pm

    Politics and regulation was responsible for the banking collapse.

    The Clinton administration boosted the Community Reinvestment Act, a program to promote homeownership by the poor which in fact was a vast regulatory extortion scheme against the banks. Under its provisions, U.S. banks were forced to commit nearly $1 trillion for inner-city and low-income mortgages and real estate development projects to people who could not afford to borrow and who could not afford to repay.

    Regulation pressured banks to make more loans to mainly black people, period — and credit problems be damned.

    So the cause is:

    a)Politically correct politicians
    b)Regulators implementing the dictat of these politicians
    c)Lack of accountability of both a) and b)
    d)The failure of those same regulators to regulate those in need of regulation

    This is far too politically incorrect to be said and of course it suits many who wish to blame greedy capitalist’ bankers for the problem.

    The truth is that regulators were part of the problem and certainly not part of the solution.

    Beware the UK FSA Retail Distribution Review that threatens to remove vast tracts of distribution cost from products that are in need of distribution mainly because commission is seen to be politically incorrect irrespective of the benefits it conveys on the consumer, the same consumer that will never ever pay a fee.

  6. Julian Stevens 8th June 2011 at 9:32 am

    Any references to light touch regulation should be qualified by pointing out that, in the UK at least, this was applied highly selectively. In fact, whilst the FSA and its predecessors have been busy relentlessly turning their regulatory screws on the IFA sector for the past twenty years, often by hindsight, in relative terms the banks have enjoyed pretty much a free rein. As a result, they [the banks] became increasingly reckless and that is how UK plc got into the mess it is now. How could this have happened? Lack of both relevant expertise and resources within the FSA, allied to instructions from the Treasury to lay off the banks and concentrate its firepower instead on the IFA sector (even though Hector Sants denied this accusation from the TSC back in March).

    The results are plain to see. On the one hand, standards in the IFA sector continue to rise, whilst hard data proves that complaints against IFA’s continue to decline year on year. On the other hand, the standards of advice and service provided by banks appear to be improving hardly at all, whilst complaints against them continue to rise exponentially.

    So, in the face of a growing tide of public anger against what the banks appear to be able to get away with (the FSA’s tardiness in dealing with the Barclays/Aviva debacle, about which complainants actually demonstrated outside Parliament, springs readily to mind), the FSA has embarked on yet another hindsight review (i.r.o. the mass mis-selling of MPPI) and the banks are now all crying FOUL. Whatever happened to preventative regulation? The FSA seems forever to be playing catch-up.

    Again, the Code: The Regulators’ Compliance Code is a central part of the Government’s better regulation
    agenda. Its aim is to embed a risk-based, proportionate and targeted approach to regulatory inspection and enforcement among the regulators it applies to.

    Risk-based? Proportionate? Targeted? Words apparently not in the FSA’s vocabulary. And compliance, of course, is something for the regulated, not those who regulate. Yet part of Hector Sants’ £800,000 remuneration package comprised a “performance related bonus”. Given that we’re all paying for it, one wonders just how the powers that be arrived at the conclusion that such a bonus was justified. Most of us out here would question whether or not it was in any way justified.

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