Risks of Over Regulation
So the regulators are about to release their pearls of wisdom to a breathless audience and already the sound of incredulity is being heard across the city.
Huge limitations, restrictions, rules, reporting criteria etc always sound great to regulators as this justifies their existence. Some of the proposals leaking out are either exaggerated so that the final document is almost a relief or one of the longest economic suicide notes in history.
Asking banks to store up capital in times of feast sounds great but who decides what is feast and what is famine? How bad will the next downturn be? Reducing risk, means reducing lending, means lower growth, means higher structural unemployment…permanently.
Limiting lending on mortgages to 3 times salary also sound prudent on paper but have they really thought this through. Average salaries are around £26k, average properties are above £150k…following this rule of thumb condemns property prices to a sudden sharp correction to the downside. The chances of any ‘key employees’ buying a property will recede even further as nobody is going to build houses for such small sums. This rule would (in general) move the UK towards the European renting model.
With the state now owning two of the biggest lenders it will be rather nice to see them regulating themselves. While at the same time HSBC and Barclays will probably be eying the exits. In these days of electronic banking a head office can be almost anywhere and there are plenty of stable nations who would kill for an opportunity to take the Financial baton away from London.
Tax income from the Financial Sector is expected to be £23bn less this year than in 2007, for all the vast sums poured into the banks, the economy would suffer far more from a permanent loss of this magnitude than from the cost of the bailout.
Also see today’s market update, Spread Trading.
Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
Good Luck!
DB
The above comments do not constitute investment advice Clean Financial accepts no responsibility for any use that may be made of them.
Article provided / approved by Capital Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
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