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Project Syndicate economists.

Howard Davies.

The reasons to stay awake at night are multiplying – let’s hope this time we have priced the risks correctly

When I took over responsibility for banking supervision in the United Kingdom, in 1995, a wise old bird in the Bank of England (BoE) warned me that I would find it a thankless task.

No newspaper ever prints a headline reading “All London Banks Safe and Sound this Week”.

But if a problem occurs, it is almost invariably seen as a case of supervisory failure.

Dozy watchdogs asleep at the wheel are a trope that trips quickly into journalists’ coverage.

Regulators are caught in a crossfire of conflicting expectations. Banks want to be left alone unless they need help. Consumers and their political representatives want regulators to be aware of every transaction, ready to intervene in real time if any glitch occurs. In the years running up to the 2008 financial crisis, the pendulum swung toward the non-interventionist end of the spectrum. Today, “intrusive” has a positive connotation in the regulatory lexicon. But the need to strike a sensible balance remains.

The other point my wise old bird made was that the only way to generate a positive story about regulation was to warn of trouble ahead. “Regulators warned today that…” is a good lede for the Financial Times or Wall Street Journal. Editors get a frisson of excitement from worrying their readers.

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