Jonathan Gough

RDR are not the initials of some famous old regiment.  Sadly it stands for the Retail Distribution Review, an FSA-inspired exercise in over-regulation and restrictive practise that will lead to many hundreds of independent financial advisers going away from the industry and the consumer being worse, not better, off.  It is scheduled to hit the streets n 2012 and is part of a growing consensus that more regulation will help us from ourselves.  The consensus is wrong.

Globally, regulators have been trying to do too much - and then not gettng it right.  10 years ago, the City perated on a principles based set of ethics where you were less told what you could and could not do, but more empowered to self-regulate determined by you and your peers' sense of what was morally right.  It didn't work perfectly, but it worked better than the regime introduced since 2001 in the UK. 

The way forward is not tougher and more regulation, but a more transparent approach, with more flexibiity and less opportunity for complex financial architecture.

Banks must be allowed to fail.  Principles relating to their winding-down should be discussed and confirmed before the event.  Living Wills - or a list of where the bodies are buried - should become necessary.  Bank stabilty data - tiers one and two ratios, lending ratios and so-on- should be published more prominently.  The nominated risk collateral used as bank balance sheet assets should be of a higher quality and assessed for its true value more honesty.  Ratings agencies should not get paid to rate and should have to justify higher ratings grades more often and more diligently.  Insurance on hedging bank debt - credit derivative swap spreads, to give it its correct title - should be published like the FTSE numbers are mentioned at the end of news slots and in the middle pages of newspapers.  This might have deterred the stampeding herds from throwing their savings at Iceland in 2007 and 2008.  Business models of a riskier nature will be constrained by the cost of this insurance, which will be a market imposed constraint - a natural check and balance.  Banks could seek to split up their businesses, but should not be forced to.

It was political expediency that was truly at the heart of the 07-09 recession.  It was politicians hungry, no voracious, for tax revenues and votes that built the environment when growth built on leverage and wider home ownership could develop unsustainably.  Let us not let the politicians decide on how to repair the damage they authored.