John Kay

To learn from mistakes, you must first acknowledge them.

When the next crisis hits, and it will, the frustrated public is likely to turn, not just on politicians who have been negligently lavish with public funds, or on bankers, but on the market system. What is at stake now may not just be the future of finance, but the future of capitalism.

Markets are not a well oiled physical machine: they are a constantly changing, adaptive biological system.

Regulation as supervision can be simultaneously extensive and intrusive, yet ineffective and prone to regulatory capture. History suggests that supervision is rarely a success.

If financial institutions are to survive, they must behave more like supermarkets

Government underwriting of deposits should be matched by assets of comparable quality. Otherwise the mismatch of risk provides an unjustifiable public subsidy to the banking sector.

The Reform of Banking Regulation
We should spend less time trying to ensure that our regulators can regulate financial behemoths with turnovers bigger than the GDP of many countries and more on trying to redesign the financial services industry so that regulation focuses on the interests of the public as consumers of financial services.
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In the unlikely event that the G20 leaders can spare a few moments between photo opportunities and ritual denunciation of greedy bankers, they might give urgent attention to the question of how to extricate themselves from the underwriting of failed banks.

One lesson of recent events is that there seem to be no limits to the greed of the greedy. But perhaps the explanation is simply the one Madoff gave to the judge who sentenced him: “I made a mistake.”

If you want to understand how the City came to play such a central role in British economic and political life, why a crash was inevitable, and why the crisis is being resolved on terms which give so much and ask so little of the financial sector, this is the most important thing you need to understand: the influence of investment banks on modern politics and policy.