Working Paper

Financial Regulation That Might Have a Chance of Working

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Regulation of financial services has been an unmitigated policy disaster.

Ed Kane has already described the demand for more regulation as being akin to seeking the hair of the dog after a good night out. The metaphor I prefer is that of the mediaeval sorcerer who, when his magic does not work, advocates more of the same. If only you had had shown more faith! The story ends only when the sorcerer is driven from the gates of the town.

And that is where we are with financial regulation today. We have a system which is at once extensive and intrusive, yet captured by the industry and ineffective at achieving its policy goals.

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