Lord Adair Turner’s tone following the publication of his 122-page missive on how to save the UK banking system from a second financial Armageddon (assuming we survive the first), is reminiscent of a previous holder of his office at the Financial Service Authority.
I’m thinking of former FSA chairman Sir Howard Davis who savoured the intellectual challenge of the job in the same way, though Sir Howard was also blessed by a spark of humour and a tad more realism.
True, no one would disagree with the good Lord’s diagnosis that we should set aside more capital in the good times, so countering the pro cyclical distortions of the Basle II regime.
Buy do we really need a pan European regulatory body and a more prescriptive approach to what we can and cannot do, and does the FSA have to beef up its bureaucracy with a regiment of new commissars to tell firms how to run their businesses?
I admit that my own perception of FSA regulation is at odds with Turner’s. If what we’ve been experiencing until now has been of the light touch kind, I dread to think what the leaden hand of the FSA will be like.
Imagine the tons of trees that will have to felled and pulped to produce yet more countless consultation papers and missives to keep the bureaucrats happy.
Think too of how big compliance departments will have to grow when under the light touch regime we’ve seen the number of compliance experts swell so that in many firms their ranks exceed those employed in marketing and sales.
It’s been forgotten that lenders are in the risk business (that’s how they earn interest and make profits) and that the UK’s financial services industry has grown into a nice little international earner because it knows how to leverage its funds more efficiently than many of its international competitors to get more bang for its bucks.
It’s also been conveniently forgotten that the growth of home ownership, a goal shared by all the political parties, couldn’t have been funded by retails deposits alone, especially after Thatcher introduced the right-to-buy, and that as homeownership grew, mortgage lending inevitably had to become more marginal.
Nor could the market have been sustained during the so called working revolution which has seen lenders adopting a more flexible attitude to borrowing as we’ve moved away from a jobs for life society to a nation where more and more people are self employed or have become contract workers and part-time consultants.
Lest it be overlooked sub-prime or non conforming lending in the UK is not the same as in the US where the credit crisis originated, and the demise of the UK non-conforming lender is leaving a vacuum in consumer choice and in the field of credit repair that will be hard to fill.
Then on the issue of unsustainable house prices, it’s important to remember that the housing market has also been driven in recent times by the buy-to-let phenomenon.
As a result of government policy and other regulatory failures of the FSA, nobody trusted pensions or equities any more and decided to put their money into bricks and mortar instead.
In short the achievements of mortgage lenders should not be sacrificed on the altar of political expediency.
Indeed, in an interview in the Sunday Times Vaclav Klaus, holder of the European Union presidency and leader of the Czech Republic, warned against a European solution to the global economic crisis that the Prime Minister and Lord Turner are advocating.
“The crisis”, Klaus declared, “cannot be solved by restraining human initiative and putting further burdens on businesses. I propose the exact opposite: deregulation, liberalisation, removing barriers and unnecessary obstructive legislation at the European level.”
I’ll drink to that but fear the worst.