John Kay

On the 22nd June the Secretary of State for Business, Vince Cable, announced a review that will  examine investment in UK equity markets and its impact on the long-term performance and governance of UK quoted companies. John will lead the review, supported by an expert panel. 
He said,  “Equity markets are a principal mechanism of control and [...]

The core problem is that banks have no intention of abiding by the spirit, rather than the letter, of any regulatory rules.

The credit crunch of 2007–8 was the direct and indirect result of losses incurred by major financial services companies in speculative trading in wholesale financial markets. The largest source of systemic risk was within individual financial institutions themselves. The capital requirements regime imposed by the Basel agreements both contributed to the problem and magnified the damage inflicted on the real economy after the problem emerged. This chapter argues that regulatory reform should emphasize systemic resilience and robustness, not more detailed behavioural prescriptions. It favours functional separation of financial services architecture, with particular emphasis on narrow banking—tight restriction of the scope and activities of deposit-taking institutions.

The best way to make the financial system more robust to the inevitable shock and failures is to restore elements of the functional separation which existed before the 1980s – most of all, to split the utility functions of traditional retail and commercial banking from the casinos of investment banking. As the crisis developed in [...]

As the commercial market is being transformed, anyone who thinks that the policy challenge is to restrict internet piracy has missed the point.

Market economies are always vulnerable to chancers and spivs who sell overpriced goods to ill-informed customers and seem to promise things they do not intend to deliver.

John reviews the interim report of the Independent Banking Commission. The direction of travel is right but the devil is in the detail

We will succeed in managing financial risk better only when we come to recognise the limitations of formal modelling. Control of risk is almost entirely a matter of management competence, well-crafted incentives, robust structures and systems, and simplicity and transparency of design.

John explains (again) why structural reform is preferable to behavioural regulation in the banking sector, and applauds Sir John Vickers’ observations on the work of the Banking Commission.

In the regulation of business affairs, from dress codes to rules on takeovers, it is always tempting to try to translate general principles into specific rules. But the world is rarely sufficiently clear and certain for this to be possible, and if it seems so today it will have ceased to be so tomorrow.