The future of regulation
Leading industry executives provide some insight on where regulation
is heading, and where it failed in the past
Would different/additional regulation diffi cult to know precisely how diff erent Tightening credit conditions will
have prevented the current market regulation could have changed the course continue to exert downward pressure on
situation? of history. But I think it could have been economic activity and worsen the cyclical
a lot better than what we had. Th ere was downturn, which will require further rate
SANTS – Th e fi nancial crisis had its and is a problem with the confi guration cuts in developed economies, expansion
origins in a set of extraordinary global of the industry which has resulted in the of liquidity facilities and more direct
circumstances over which the world industry’s reward structure being intervention in banking systems.
fi nancial regulatory system and fundamentally fl awed in its incentives.
individual national regulators had only Currently the rewards and sanctions
limited infl uence. Th ere are however facing industry participants still seem to Does there need to be a more
lessons the FSA has learnt. A number me to ensure the system remains prone to comprehensive global approach to
of UK banks, notably those that periodic crises.
regulation?
became over-dependent on wholesale Regulation addressing the industry’s
funding, went into the crisis with incentive structure I think would have SANTS – Th is has been a global failure
business models ill-equipped to survive diminished the eff ects of the current and all elements of the world fi nancial
a stress of this severity, and we could crisis. Going forward, there is no doubt regulatory framework need to be looked
and should have done more to there should be curtailment of the at. We will play our role, working
challenge these models. We have taken option-like compensation system closely with our colleagues around the
steps to address these supervisory issues enjoyed by bankers, asset managers and world, to look again at the regulatory
by introducing a Supervisory other fi nancial intermediaries that framework and the standards expected
Enhancement Programme (SEP). We encouraged high risk decisions and on capital, liquidity and risk
have already made many of the exacerbated agency issues. management etc. We will be publishing
necessary changes, and we will a Discussion Paper next year to set out
complete the SEP by the end of the the FSA’s views on the right global
year. I believe that the performance of What will be the long term effect of framework going forward.
the FSA in the last 12 months shows the bailout?
how eff ective we can be as an ROGGE – Yes! Th ere are too many senior
organisation. We have done our utmost ROGGE – Th ere will be less leverage; bank executives left who think of this as a
to mitigate the eff ects of the crisis on lower long-term growth particularly in great buying opportunity by leveraging up
the institutions we regulate – and will the West; better bank balance sheets; their balance sheet with the (unintentional)
continue to do so. fewer dividends; lower equity prices and help of government money.
less irrational exuberance.
ROGGE – I don’t think regulation would URWIN – Global collaboration is so
have prevented the current situation. Alan URWIN – It is too early to say what the obviously necessary and diffi cult. Any
Greenspan and Eddie George wanted even long-term impact of this will be, but after game theoretical analysis demonstrates
less regulation. Most regulators, like senior a slow start I was impressed with the the point. Financial markets and market
management, had no idea what their coordinated policy responses from places have become much more closely
junior quant people bought although governments and central banks around integrated. Th e crisis shows clearly the
senior management gave their approval. the world to provide liquidity and tightly coupled complex system we are a
short-term funding. Th ese will not be part of. A global approach will present a
URWIN – As a big believer in path enough to limit the risks to the real huge political challenge and take a
dependency and alternative histories, it is economy which are pretty unstoppable. prolonged period to achieve.
8 WINTER 2008/09
08-908-9 roundtable.indd 8roundtable.indd 8 27/11/0827/11/08 17:08:5317:08:53
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