Timothy Geithner made a good point to Evan Davis on the BBC Today programme this morning. Comparing the economic position of the U.S. with that in the U.K., he pointed out that the light touch regulation, which began with Thatcher and continued under Brown, both as Chancellor and PM, sucked banking activity to the U.K. from the U.S., where the regime was tougher. This meant that in London under-capitalised banks represented a much larger and riskier proportion of our GDP. Described by Brown as a ‘goldenage for the City’ (that surely ranks with the unsinkable Titanic for calamitous declarations) the relaxation begun with Big Bang produced the biggest financial crash in modern history.
What is significant is that the U.S. is already ahead on its banking reforms, creating a much tougher set of capital rules and separating propriety trading from main street banking. Our government is still talking tough and doing little. There is fear we will drive the bankers away. That is the whole idea. Dangerous banks are worse than no banks. What we need is more and smaller banks, with regional connections and specialist know how. None should be too big to fail. Fear of failure is the most powerful regulator of all.
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