Why regulate at all? A critical analysis of the rationale and effectiveness of UK bank regulation

Baker, Andrew

Abstract

The Global Financial Crisis (GFC) represented the biggest shock to the world economy since the Wall Street Crash of 1929 and subsequent banking crisis that precipitated the Great Depression of the 1930’s. Since this event the debate on the structure and rationales of regulation have pervaded the banking industry. The position of regulation and the part it played in the GFC is of fundamental importance in understanding the key issue of why we regulate banks and financial services and avoid repeating the failures of the past. This thesis provides an investigation of the phenomena of bank regulation using the GFC as its anchor point to answer the question of why we regulate. With reference to relevant theory the thesis looks to analyse the structure of regulation in the period up to the emergence of the GFC in the Autumn of 2007 to gain understanding if that structure was, at least partly to blame, or was the overall macroeconomic environment the driving force behind the crisis. The thesis will then consider the reform packages that followed the impact of the GFC, with particular focus on those reforms that followed the 2010 UK general election. To answer the question of why we regulate, the thesis analyses the key components that were central to the emergence of the GFC and continue to play a central role in understanding the key rationales behind why we regulate banks and how policy makers should approach the overall architecture of bank regulation. The thesis posits that the past approaches to regulatory architecture failed to understand the full macroeconomic forces that resulted in the GFC creating complex regulatory structures that lacked the transparency needed to provide a stable environment in which banks could operate to the benefit of society. The thesis presents the argument that a simpler and more focused structure with properly delegated functions and a focus on specialisation would provide a basis for sound bank and financial services regulation. The conclusion is that UK policy makers should look to provide a regulatory environment that will allow bank failure to occur in a manged and orderly manner without creating systemic risk, limiting the impact on ordinary bank customers, and without recourse to UK taxpayer bailout. One way to achieve this is to reduce regulation to a bare minimum, to disincentivise the moral hazard created by the complexity and opacity of past regulatory structures.

• Thesis Type: Thesis
• Deposit Date: Jan 28, 2021
• Publicly Available Date: May 2, 2023
• Keywords: Bank Regulation
• Public URL: https://uwe-repository.worktribe.com/output/7042834
• Award Date: May 2, 2023