6 thoughts on “Regulators are rewarded for failure”

  1. Posted 16/03/2009 at 14:45 | Permalink

    I wonder if there is more scope for competition with respect to regulation than we currently seem to experience. Would it be possible to have an UNREGULATED bank, with which I could deal at my own risk? I would lose the benefits of having all my bank details purveyed to government officials whenever they want, of deposit insurance, and so on. Might a company choose to use UNREGULATED auditors, who would just give their own professional opinion without necessarily following all 3,000 pages of accounting ‘principles’ we currently enjoy (more on the way, no doubt)? We could call this parallel system ‘the FREE market’.
    Only a thought.

  2. Posted 16/03/2009 at 14:45 | Permalink

    I wonder if there is more scope for competition with respect to regulation than we currently seem to experience. Would it be possible to have an UNREGULATED bank, with which I could deal at my own risk? I would lose the benefits of having all my bank details purveyed to government officials whenever they want, of deposit insurance, and so on. Might a company choose to use UNREGULATED auditors, who would just give their own professional opinion without necessarily following all 3,000 pages of accounting ‘principles’ we currently enjoy (more on the way, no doubt)? We could call this parallel system ‘the FREE market’.
    Only a thought.

  3. Posted 16/03/2009 at 16:36 | Permalink

    I agree. The unregulated bank should state that it is so, clearly. The Bank of England might also decide that it does not want to provide such a bank with lender of last resort facilities (that is fine too as far as I am concerned). Of course, the unregulated bank will have a strong incentive to signal to the market that it is trustworthy in some way. Indeed, there could be many providers of regulation with which banks could contract with the state regulator being just one of those.

  4. Posted 16/03/2009 at 16:36 | Permalink

    I agree. The unregulated bank should state that it is so, clearly. The Bank of England might also decide that it does not want to provide such a bank with lender of last resort facilities (that is fine too as far as I am concerned). Of course, the unregulated bank will have a strong incentive to signal to the market that it is trustworthy in some way. Indeed, there could be many providers of regulation with which banks could contract with the state regulator being just one of those.

  5. Posted 17/03/2009 at 10:56 | Permalink

    It has often been pointed out that regulation can lead to a sense of false security. And to expect everyone to ‘follow best practice’ seems self-evidently impracticable.

    Hayek [in ‘The Meaning of Competition’] said “competition is in a large measure competition for reputation or good will”; but regulation may be anti-competitive in that it makes such competition unprofitable.

    We need a choice: competition versus regulation as a dynamic way to provide best value to consumers. Clearly it needs to be dynamic not static. And there surely needs to be some kind of implied cost-benefit analysis. (The ‘costs’ of regulation are far wider than just direct plus compliance costs.)

  6. Posted 17/03/2009 at 10:56 | Permalink

    It has often been pointed out that regulation can lead to a sense of false security. And to expect everyone to ‘follow best practice’ seems self-evidently impracticable.

    Hayek [in ‘The Meaning of Competition’] said “competition is in a large measure competition for reputation or good will”; but regulation may be anti-competitive in that it makes such competition unprofitable.

    We need a choice: competition versus regulation as a dynamic way to provide best value to consumers. Clearly it needs to be dynamic not static. And there surely needs to be some kind of implied cost-benefit analysis. (The ‘costs’ of regulation are far wider than just direct plus compliance costs.)

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