I previously made the assertion that a complete overhaul of regulation is required in the banking sector to ensure that a well-functioning economy can exist even with the onset of negative shocks to the system. What is called for is a series of structural reforms to the industry as opposed to a complicated mass of unfocused and gutless regulatory measures imposed on operations and industry behaviour. Reforms like these are generally put forward by people who are either inexperienced and do not fully comprehend the impact of the regulations they are proposing or, more worryingly by very intelligent people who are acting like Charles Adams did with the railroads in the 1880s, with the aim of implementing changes that are very elaborate and have a good sound but ultimately have no real significance (McGraw, 1984)(Kay, 2009).
We must be realistic about the ability and effectiveness of regulation. At a lecture to students at Lancaster University Professor John Kay recalled a conversation with a city banker; 'People in the financial regulation industry are no good' -'Well of course they're no good, if they were we would have hired them already'. With this in mind we must expect regulatory measures imposed on the financial system to fail and it is the role of structural reforms to ensure that when widespread economic downturns do inevitably set in, the core functionality of the economy remains intact.
-According to the Financial Times on Tuesday 5th February, the Government appears to agree:
Next I will look at what this structural regulation may look like.
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