John Plender fears that regulatory upheaval at the top of a bull market could spell Howard's Endby John Plender / August 20, 1997 / Leave a comment
The big three financial centres-New York, Tokyo and London-are simultaneously confronting what could be the biggest regulatory upheaval since the war. Oh dear. With Wall Street and London looking suspiciously near the end of a long bull market, this may spell global trouble.
The most obvious risks are in Tokyo, where a big bang is being imposed before a banking crisis is resolved. Things are less clear in the US, but the odds on repeal of Glass-Steagall, the anachronistic law which puts a barrier between banking and securities business, are better than for some time. In Britain we have Gordon Brown’s enlarged Securities and Investments Board, which is to run banking supervision and just about everything else too.
The separation of the Bank of England’s role as lender of last resort from prudential supervision is not without precedent: the Germans and Swiss manage fine that way. But it still makes me nervous. Good communication between super-SIB under Howard Davies and a down-sized Old Lady under Eddie George will be crucial. It is worth recalling that before the fringe banking crisis of the mid-1970s, friction between Threadneedle Street and Whitehall led to a threadbare exchange of information. Since the Department of Trade and Industry (which licensed the secondary banks) was remote from the markets, this was unfortunate. The rest is financial history.
Much will hinge on Davies’s management of the bloated new watchdog. A senior City wag has suggested that it be called Howard’s End. Meanwhile, the newspapers are already speculating on the next job but one for a man whose career has been a magnificent affirmation of the virtues of labour mobility.
All rather disconcerting, especially in the light of comments from Gerald Corrigan, a former head of the New York Fed. He says it will be much harder to manage big dis- ruptions such as the 1987 stock market crash because of the growing volume, complexity and interconnectedness of financial flows. Perhaps we shall see what the 19th century banker Lord Overstone called “a slight premonitory movement” on the tenth anniversary of the October 1987 crash.
the transformation of British Airways was one of the triumphs of the Thatcher era. How depressing to see some of those gains slipping away in the atavistic confrontation with the TGWU. Are the British simply incapable of managing large organisations? Maybe those economic historians who argue that Britain never made the transition…