Banking Regulation

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With news today that the Lloyds TSB/HBOS Banking group is in serious difficulty it is amazing that despite the acres of newsprint, it seems that many people still do no understand the nature of the crisis and its root causes.

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A key point this is not being recognised is that, while the financial system was globalising, so was the regulatory system – with the Basel Banking Regulation committee and other international bodies taking the helm.The net effect was that we in the UK were saddled with an inflexible, slow moving and wholly inadequate system of regulation and, as importantly, it was one over which no single – or any – nation had control. As was the global financial system out of control, so was the banking regulatory system.

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It is curious therefore, to see that the response of our government has been to in effect nationalise most of the UK banking system, with more to follow. The effect of that is to reassert national control. But there is no recognition that the other half of the equation – the regulatory system also needs to be nationalised.Thus, in effect, we are getting the worst of all possible worlds.

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While most of our Banks are being bought up by the government with public funds, the very regulatory system which allowed them to go to the brink of destruction – and even beyond – is being left almost completely untouched, its role wholly unrecognised as a primary cause of the banking problem which is particularly adversly effecting small businesses.

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In many ways, Gordon Brown is as much a passenger of events as are we all. That is the really terrifying thing – nobody is really in control. The mighty machine of global finance is falling apart and there is nothing anyone can do to stop it.

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