Before the crisis, financial regulation focused on averting the failure of individual banks – and was not much good at that. Now there is much more focus on preventing systemic crises. In the jargon, we have moved from focusing on “microprudential regulation” to a much greater emphasis on “macroprudential regulation”. In the UK, this shift has resulted in the creation of the Financial Policy Committee, which has just published its thinking on the powers it wants and the tools it intends to use.

At Standard Chartered we are very supportive of the concept of macroprudential regulation, and the establishment of the FPC. We are dismayed, however, by the way it has defined its role. Despite a wealth of available insights from countries with much more experience in this arena, the UK seems determined to prove “we know better”, taking an approach that is markedly different from what has been proved effective elsewhere.

The FPC’s approach appears simultaneously extremely interventionist and extraordinarily blinkered. It wants to be able to vary banks’ capital requirements in aggregate and by sector, and to be able to vary the leverage ratio, with little or no limit on the degree of required variation, or scant requirement to justify the intervention. It might not be obvious from the somewhat technical language but in effect the FPC wants to control how much lending there is in every aspect of the economy, from manufacturing to mortgages, and how much it costs. This reeks of 1970s-style quasi-nationalisation of the industry. If this were car manufacturing, the equivalent would be having a central committee deciding how many cars were to be produced and how many should be 4x4s, small hatchbacks and so on. We know how well that went.