Learning the lessons of finance regulation

I was fascinated to learn that an academic at the University of Glasgow has won almost half a million pounds worth of funding from the Economic and Social Research Council (ESRC) to examine why previous attempts at introducing financial regulation following an economic crisis have failed.

Catherine Schenk, Professor of Economic and Social History, has been awarded the substantial grant and a project-linked PhD studentship, together totalling about £490,000 from the Economic ESRC for her project entitled: The Development of International Financial Regulation and Supervision.
 

This project, so the blurb says, will assess the development of international financial regulation by contrasting studies of institutional decision-making in three international financial centres in the late 20th century (from 1961-1982) as the market and regulators responded to a series of challenges and at the same time embarked on a process of liberalisation.
 

"Many people have wondered at how the international authorities could have so spectacularly missed the build-up in risky activity in the global financial system over the past 10 years. In fact, regulators have missed the boat several times in the past with disastrous results, albeit not as bad as the current crisis,” Schenk explains.
 

The project will try to uncover why central banks and international organisations such as the IMF and the BIS failed to deal with excessive risk-taking in international banking in previous crises such as 1974 and 1982.
 

There is no doubt that the current economic crisis has emphasised the importance of developing a long term perspective on institutional change in a desperate attempt to understand and respond to current and future challenges in the global economic system.
 

And while it is important to learn the lessons of how not to repeat those mistakes yet again, the question is, do we really need an academic post mortem of the economic crisis to see where we (in particular the banks and regulators) went so horribly wrong?
 

Amid the revelation this week from the new Office for Budget Responsibility that the economy was more damaged by the banking crisis than previously admitted, will grow more weakly and may never fully recover, the business world needs to heed the mistakes of the last few years and - the time for analysis is over.
 

And as the banking fraternity prepares for George Osborne’s pledge to introduce a bank levy that would see big banks pay for the damage they inflicted on the British economy, the lessons of the credit crunch will be all too fresh in the minds of many.