John Kay has a great column in the Financial Times today titled: “More Regulation Will Not Prevent Next Crisis.” Kay concludes:
Banking supervision should then be limited to the weeding out of unfit persons. Capital requirements, liquidity provisions and risk assessments should be matters for the business judgment of the financial institution themselves. We cannot prevent booms and busts in credit markets, but today’s regulation of risk and capital – which is more reflective of what has occurred than of what may occur – does more to aggravate these cycles than to prevent them. Regulation in a market economy is targeted at specific market failures and should not be a charter for the general scrutiny of business strategies of private business. Banking should be no exception.