Cutting City regulation risks another financial crash, say economists
A group of 58 leading economists and politicians, including the former business minister Vince Cable, has written to the chancellor to say that scaling back City regulation will put the UK at risk of another financial crash.
The open letter, which has also been signed by the former Greek finance minister Yanis Varoufakis and Columbia University professor Adam Tooze, was sent in reaction to the Queen’s speech, which outlined Rishi Sunak’s plans to “cut red tape” through a financial services and markets bill.
“We wholeheartedly support the government’s aim to stimulate long-term UK economic growth, including through financial regulation,” the letter said. “Yet we believe that competitiveness is an inappropriate objective for regulators.”
News of the pending bill – which comes as the UK aims to replace EU regulations following Brexit – has stoked fears about a regulatory race to the bottom, with economists saying it could force watchdogs to act as “cheerleaders” for big city institutions.
They argued that competitiveness objectives could be a “recipe for excessive risk-taking”, and could create the same conditions that have since been blamed for the 2008 banking crash. “After the last global financial crisis, which cost the world economy some $10tn, it was accepted that a focus on competitiveness by the then Financial Services Authority (FSA) had helped cause the disaster,” the letter said.
They even pointed to a 2019 speech by Andrew Bailey – the Bank of England governor who formerly headed the FSA’s successor, the Financial Conduct Authority – in which he argued against reintroducing a competition objective for the City watchdog. “It didn’t end well for anyone, including the FSA,” Bailey said.
Cable said in a statement: “It is
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