Regulators, not under-regulation, caused the financial crash

RELEASE DATE:
TUESDAY 16 JUNE 2009

'Regulators, not under-regulation, caused the financial crash'

The financial crash occurred because regulators were too preoccupied with form-filling and did not see that the whole financial system was at risk, a leading economic think-tank says today.

Like Members of Parliament in the expenses scandal, the banks did not actually break any of the regulators' rules. But the rules were targeted on the wrong things, allowing a disaster to flare up under the regulators' noses.

The comments come in a report, Regulatory Myopia, from the Adam Smith Institute, which is its response to Lord Turner's Report on financial regulation, and published ahead of the Chancellor's Mansion House Speech in the City of London.

The Institute says that Turner is wrong to suggest that regulation was too 'light touch' for the job. The banks, it says, are minutely regulated, from how they deal in the credit markets to how quickly they pick up the phone to their customers. More regulations would not have saved the system, and will not do so now. Rather, the mistake was a shortage of overall supervision that would have seen the potentially fatal risks that the banks were running and would have intervened to curb them.

The report's authors, London Business School Fellow Tim Ambler and regulation consultant Keith Boyfield, say that the Bank of England should take on this supervision role, and that far from being expanded, the powers of the regulator, the Financial Services Authority (FSA), should be cut back to 'match its competence'. The FSA, they say, must realise it is 'part of the problem, not the solution'.

Click here to download a PDF of Regulatory Myopia.

Slug path

regulators-not-under-regulation-caused-the-financial-crash

Joomla-id

3695

Guardian.co.uk: True Boris

Slug path

asi-in-the-news/asi-in-the-news/guardiancouk-true-boris

Joomla-id

3690

Old Teaser

And now Boris has been bollocked at the Adam Smith Institute blog for supporting the London Living Wage. Dissident Lib Dem (and Bromley Councillor) Tom Papworth:

Before he was elected he wrote how minimum wage laws drove "up your costs and greatly [reduced] your ability to reinvest". Yet...in July 2008 [after he was elected] he described how "the living wage...is not only morally right but also makes good business sense, contributing to better recruitment and retention of staff, higher productivity and a more loyal workforce with high morale." How times have changed!

For an economic liberal's critique of the best known advocate of free markets in British politics, read on here. Recommended for all Boris-bashers on the left who've yet to detect that he's not turning out to be quite the political animal they warned us about.

Published on guardian.co.uk here

Evening Standard: Bob Diamond was only doing his job

Slug path

asi-in-the-news/asi-in-the-news/evening-standard-bob-diamond-was-only-doing-his-job

Joomla-id

3763

Old Teaser

Tomorrow the Adam Smith Institute — one of the leading think-tanks — publishes is contribution to the debate, and could scarcely be more damning of the FSA's position and proposals.

Far from expanding the role of the Financial Services Authority, these authors recommend shrinking it back to its level of competence. The FSA, they say, is part of the problem not part of the solution, and the thrust of Turner's proposals, which it characterises as more form-filling and box-ticking, will perpetuate the problem whereby the FSA looks all too closely at details but misses the big picture.

Instead of creating more panels of regulators, the Adam Smith Institute suggests making much better use of the structures we already have, such as the Financial Reporting Council and the audit profession.

Instead of an international regulator, it recommends better liaison between national regulators.

Most of all, instead of more regulation, it recommends better supervision and that surely is the key.

Published in the Evening Standard here

City AM: Supervisory breakdown at fault for crisis

Slug path

asi-in-the-news/asi-in-the-news/city-am-supervisory-breakdown-at-fault-for-crisis

Joomla-id

3761

Old Teaser

The financial crisis was caused by lack of supervision of the financial sector, rather than bankers breaking the rules, according to the influential Adam Smith Institute.

Director of the free-market think-tank Eamonn Butler likens recent financial troubles to the parliamentary expenses scandal – with everyone sticking to the rules, but without proper supervision of the consequences.

In a paper entitled Failure of Supervision, Butler calls for “ better supervision of the risks being run by financial institutions and the systemic risk in the sector as a whole".

He adds that the Financial Services Authority (FSA) should be scaled back rather than expanded, with more responsibility given to the Financial Reporting Council, the Accounting Standards Board, and non-executive directors.

The response to the Turner Report also calls for the FSA to be answerable to Parliament, with proper performance indicators.

“Adding more checklists or employing more regulators would not have prevented the crisis," says Butler.

The institute urges the Bank of England to have a formal supervisory role, with continued stress testing of the financial system.

It also calls for investment banking to be separated from retail banking, stricter capital ratios for banks and the disqualification of directors from banks that have required a government bailout. Butler argues against the proposed new international bank regulator, calling instead for better liaison between national regulators.

Adam Smith Institute (ASI) is a free-market think-tank based in London.

Influential ASI proposals have included outsourcing local government services and reducing the number of quangos.

Published in City AM here

The Scotsman: Today's the day you have paid your taxes

Slug path

asi-in-the-news/asi-in-the-news/the-scotsman-todays-the-day-you-have-paid-your-taxes

Joomla-id

3764

Old Teaser

Britons had to work until today to earn enough money to cover all the tax they must pay during 2009, new research has found.

The Adam Smith Institute said it would take the average worker 134 days to earn the money they would hand over for income tax, National Insurance, VAT and other taxes.

CNBC: Brown's Government Under Threat

Slug path

asi-in-the-news/asi-in-the-news/cnbc-browns-government-under-threat

Joomla-id

3656

Old Teaser

CNBC: UK government is shaken, not just stirred

Slug path

asi-in-the-news/asi-in-the-news/cnbc-uk-government-is-shaken-not-just-stirred-

Joomla-id

3639

Old Teaser

Written by Lisa Auret

The burgeoning British scandal over the misuse of government expense accounts is claiming its first major victims and setting the stage for a major shake-up in the country's leadership.

"It's an opportunity for (Prime Minister Gordon) Brown to rebrand his party somewhat. So there may be some major changes," Eamonn Butler, director at the Adam Smith Institute said.

Published on CNBC here.

CNBC: Expenses scandal overshadows EU elections

Slug path

asi-in-the-news/asi-in-the-news/cnbc-expenses-scandal-overshadows-eu-elections

Joomla-id

3640

Old Teaser

Published on CNBC here.

CNBC:Tom Clougherty on Parliamentary Reform

Slug path

asi-in-the-news/asi-in-the-news/cnbctom-clougherty-on-parliamentary-reform

Joomla-id

3587

Old Teaser

Published on CNBC here.

CNBC: Dr Madsen Pirie on a transparent government

Slug path

asi-in-the-news/asi-in-the-news/cnbc-dr-madsen-pirie-on-a-transparent-government

Joomla-id

3560

Old Teaser

Published on CNBC here.