Mistakes of the past bound to be repeated, say experts

16 September 2010

Lord Myners has raised serious doubts as to whether dismantling the FSA will prevent the onset of another financial crisis. Speaking at the Treasury select committee inquiry into financial regulation on Tuesday, he warned that macro-prudential regulation did not address the key issues that led to the recent downfall of major banks such as Lehman Brothers and the Royal Bank of Scotland, which was bailed out by the government. He told committee chairman Andrew Tyrie MP: “I don’t think there is anything in the new structure that will help institutions manage risks in a more informed way, and there is nothing to hold directors to account. We’d be misleading ourselves to think that the structure will mean that the crisis will not happen again. “The banks did not fail because of the previous structure of the FSA, Bank of England or the Treasury, but because of mistakes in their own management. “Regulators did not spot that or handle it well. But you can’t build safer banking system without a better banking management.” Professor Charles Goodhart, who also appeared before the committee, was only slightly more optimistic about the stability of the economy when he was grilled by its members. He said: “The Bank looks after market relations, so to give more responsibly to it is a step in the right direction.” He also took the opportunity to urge bankers to be more responsible in how they manage their firm’s finances – even if it means going against the status quo. He said that it was difficult to do, because if banks had warned that sub-prime mortgages were troublesome before the crisis then they would have been lampooned by politicians, and the media for preventing poor people from buying a home. Mr Goodhart added: “A banker has got to be willing to take away the punchbowl just as the party starts and that is a difficult thing to do.” However, Lord Myners also raised fears that too much responsibility was being placed with the Bank’s governor’s office – held by Mervyn King. He said: “There is a great burden of expectations on the office of the governor. “And just as there were banks that were ‘too big to fail’, we don’t want to be in a situation where the governor is too big to fail.” Keith Richards, group distribution and development director for Tenet, said: “The recent crash was so exceptional but unfortunately it seems to be something that happens every 30 to 40 years and is regrettably likely to be repeated again. “Every generation seems to forget the lessons of the previous generation. “Although regulators can help navigate or mitigate the impact of such failures it is unlikely that they can completely eradicate them.” Published by FTAdviser