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The limits of financial regulation

By Jay Elwes  

In November last year, the Chancellor wrote to the Governor of the Bank of England asking him to look into the possibility of introducing a leverage ratio for banks. In the exchange of letters the Chancellor made clear his feelings that a ratio of this sort, which would limit bank borrowing levels, would make Britain’s financial system more stable.

But does there come a point at which financial regulation begins to have the opposite effect to the one intended? Is it the case that regulation provides an illusion of safety thereby encouraging complacency?

The consequences of this are not confined…

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