A question for politicians and regulators – are we safe yet?

2nd May 2013


One story which may have been a little overlooked this week was a letter from the Chancellor of the Exchequer George Osborne to the Bank of England Governor Mervyn King and especially the Financial Policy Committee as the the Guardian reported.

This is the key quote from the Chancellor – “It is particularly important, at this stage of the cycle, that the (financial policy) committee takes into account, and gives due weight to, the impact of its actions of the near-term economic recovery”.

This could be very significant. The FCA sits within the Bank of England’s organisation and is designed to spot the next crisis coming and head it off. It is yet another acronym in a whole range which includes the Prudential Regulatory Authority which in plain language makes sure that financial institutions have enough money and don’t take so much risk that they collapse and the Financial Conduct Authority which you could argue is designed to make sure financial institutions and advisers treat you the investor and consumer fairly and not missell, mis-advice or mis-market.

But is this the start of Government pressure to row back on some of the regulations? Now, Mr Osborne is right to worry that amid all the increased regulations, economic activity could be restricted. Force a bank to hold more capital and it is unlikely to lend more. Force an insurance company to do so, and it may put up the price consumers pay to buy insurance or an retirement income when you translate an investment pot into an annuity. Restrict some types of financial product and you might reduce liquidity in the financial system, though these arguments hold a little less water, given fears about another shadow banking system rising up again.

But are we missing something? UK financial regulation has undoubtedly got tougher. So has Europe wide regulation, some of which is common sense, because of what Europe’s banks were up to pre-crisis, some of which is deemed potentially harmful to the UK. Meanwhile in the US, Congress has rolled back on a lot of planned legislation following fierce Wall Street lobbying. However, the US regulators and indeed other aggrieved parties are using the courts to extract a price for pre-crisis bad behaviour.

Even at the level of the UK mortgage market, we have a new set of regulations which appear designed to make lenders and borrowers more conservative. This is known as the Mortgage Market Review. How regulators love their acronyms.

Yet we also have Bank of England initiatives to get lenders to lend more, and two Treasury backed Help to Buy schemes aimed at getting people to borrow at a higher loan to value.

It is no wonder the situation is confused. However, at Mindful Money, we think the position could be cleared up very easily if the Chancellor, Governor and regulators gave the answer to one very important question. Are we safe from another financial crisis?  If the answer is yes then we can look at unnecessary regulations and whether some may involve an overreaction which could be holding back our economy. If it’s maybe, then we need to be very careful because no-one in the UK wants or needs to go through all that again.

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