The Wharf Comment: Banking regulation

By Giles Broadbent on February 2, 2010 11:12 AM |

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President Barack Obama's assault on Wall Street is driven more by political expediency than economic necessity.

His lack of tangible progress (job creation) in his first year has lost him much ground and the new round of bank bonuses has only served to rub his nose in his apparent impotency.

But, just as the unions of the '80s were swept away as they became grotesque parodies, hubris will have its day.

It is true that a thriving financial services sector is vital to Britain and tougher regulation may harm the free flow of credit.

And, yes, the banks may well have a valid argument for special treatment because of their role in funding small business. But the inability of bank bosses to decouple bonuses from performance was so brazen, so lacking in humility, understanding and contrition that eventually politics had to step in where economics feared to tread.

The reality is that we inhabit that ellipse where economics and politics overlaps. That the banks could no more grasp that paradigm than the preceding one (prices can go down as well as up) may prove yet another costly oversight.