Lessons for regulation | Cohrs BofE
It is good that we remember 2008, what lead to it, and think about design for the future. Cohrs of BofE spoke in Edinburgh yesterday and this statement certainly resonates.
We have clearly moved into an environment where the notion of self-correcting markets and light touch regulation is a distant memory. However, care must be taken to ensure that regulators don’t go too far and stifle legitimate risk taking which creates value in the real economy. The wisdom of hindsight, from which we benefit in considering the ‘light-touch’ approach, will not be available to us to evaluate the post-crash regulatory mantra of "intensive and intrusive" for some time yet. But even at this early stage it seems clear that the correct balance needs to be struck.
There is clearly a political and practical desire to take aggressive action against banks with full bodied regulation. The issue is whether that regulation will be effective. The big talk at the January 2009 World Economic Forum was how we must resist the temptation to regulate against the last crisis and miss the causes of the next one.
And this statement in the speech is telling.
The need to draw meaningful lessons from what happened in the fourth quarter of 2008 continues to be urgent, although a friend who happens to be a Professor of History tells me it probably takes about 50 years to put dramatic events into a truly appropriate context.