Avoiding the U.K.’s regulation mistakes

John Dimsdale Jun 2, 2009
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Avoiding the U.K.’s regulation mistakes

John Dimsdale Jun 2, 2009
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TEXT OF STORY

Steve Chiotakis: Any day now the Obama administration is set to unveil its new vision for banking industry oversight. There are lots of federal regulators and the White House is likely to recommend consolidating them. But that’s been tried already, in the United Kingdom. And the results don’t inspire much confidence. Here’s Marketplace’s John Dimsdale.


John Dimsdale: The administration wants to combine bank regulators. And back in 1998, Great Britain did just that — creating the Financial Services Authority. Was that a success?

Martin Baily: Their financial crisis is at least as bad as ours. From that point of view, it did not work.

Martin Baily chaired President Clinton’s Council of Economic Advisers. He says the central British regulator didn’t prevent the collapse of several British banks. And some U.S. lawmakers say that’s proof consolidation is no fix.

Baily: I don’t think you can draw that conclusion yet.

Baily says Britain put too many firewalls between the new bank regulator and the country’s central bank. When regulators needed lower interest rates to save banks, there was no coordination.

Baily: If you are going to consolidate your financial services authority, you need to make sure that it has close ties to the central bank, which is the lender of last resort.

Baily says that doesn’t rule out consolidation…if it’s done right.

In Washington I’m John Dimsdale for Marketplace.

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