I read this piece in an ACCA publication and thought of copying it as it succinctly articulates my views! Something I always repeat in support of functions like risk management, learning & development, quality assurance in my office, which unfortunately does not breakthrough thick skulls which have matured thru ‘age’. Their job is not appreciated until something goes wrong. Its not only in the US but the problems are common to the whole world.
A problem with regulation is its enforcement. Richard Scott Carnell, in Regulator’s Incentives,* describes the difficulties of the regulator’s job in the US.
A bank can look healthy and report record profits even as it slides toward major losses. A regulator may attract considerable resistance if he takes early corrective and preventive action. Few people will think of the problems averted and a regulator may be criticised by bank trade associations, house builders, estate agents, the media and politicians for endangering jobs, housing markets, entrepreneurship, and the nation’s prosperity.
Scott Carnell summed it up.
We have difficulty telling good banks from bad – until it’s too late. We have difficulty telling good regulation from bad – until it’s too late. Lax regulation wins more friends and plaudits than stringent regulation – until it’s too late. Risky banks and their allies exert more political influence than taxpayers – until it’s too late. These dynamics contribute to a stubborn reality underlying the regulatory failures of the past four decades: bank soundness regulation has no political constituency – until it’s too late
Source:. *Published in Make Markets be Markets, Roosevelt Institute, 2010.