More regulation 'raises risk' of future meltdowns
Published 30/12/2010 | 08:00
Politicians have used the financial sector as a scapegoat for the world's economic collapse and their push to tighten banking regulations could increase the chances of future meltdowns, a new report has claimed.
The paper, published by the Legatum Institute and the Taxpayers' Alliance, warns that policymakers across the world are in danger of learning the wrong lessons from the crash of 2008.
It also states the "rush" by organisations, including the European Union and G20, to introduce more rigorous regulations on banks could actually be dangerous for the world economy.
The report concludes: "In the aftermath of the crisis, politicians have been acting to channel public anger away from themselves and onto the financial sector. This led them to promote a set of policies that might be politically satisfying but do not address the true causes of the crisis.
"It is clear that the current wave of intensive financial regulation is harmful, costly and potentially dangerous for the world economy."
In the document, governments are accused of trying to "dodge" their responsibility for the meltdown by unfairly shifting the spotlight onto the financial sector.
"Some of the measures announced are disingenuous political posturing, while others continue existing mistakes partly responsible for the problems we are facing today," the report says.
"It is entirely possible that the new regulations being implemented could hurt established financial centres like the City of London, while increasing the frequency and strength of global financial crises."
The report, Financial regulation goes global: risks for the world economy, blames the crisis on US regulations that encouraged the relaxation of restrictions on home loans and the nationalisation of risk by the intervention of the government-backed lenders Fannie Mae and Freddie Mac.
The report's co-author, Matthew Sinclair, director of the TaxPayers' Alliance, said: "The crisis was the result not of too little regulation of the financial sector but the wrong regulations.
"Unfortunately, there is a serious risk that politicians trying to build ever more closely harmonised global regulations will create nastier and more frequent global crises. That approach needs to be reconsidered, we can't let the response to this crisis produce the next one."