It's little surprise that two of the City’s fiercest watchdogs avoided banker-bashing rhetoric at Mansion House last night.
Tracey McDermott and Andrew Bailey were, after all, speaking to around 300 financial sector workers at this year’s City Banquet hosted by Lord Mayor Alan Yarrow.
Both followed one of the primary rules of public speaking – know your audience. From the perspective of this newspaper, there was a lot to cheer.
McDermott, acting head of the FCA, acknowledged that the pace of extra regulations, which has accelerated post-crisis, could not continue. An explosion of new rules may be working wonders for the compliance industry, but McDermott warned that it could otherwise “crowd out… creativity, innovation and competition”.
She also alluded to the law of unintended consequences, and referred to the danger that regulation “itself protects incumbents from competition”. Quite right.
Meanwhile, Bailey, the head of the Bank of England’s prudential regulation authority (PRA), began with an impassioned defence of markets – “free trade and free capital flows are the foundation of a successful world economy with all the benefits that brings for the welfare of people” – and also hit back at those who say that capital buffers should get fatter and fatter.
All this was music to the ears of anyone who understands the role of markets in facilitating wealth creation, and rejects the idea that the financial crisis was simply caused by “greed” and “light touch regulation”. The factors that caused, and then exacerbated, the crisis include numerous government measures, such as the US approach to home-ownership and mortgages, and policies on both sides of the Pond that built up “too big to fail”.
Even eight years later, the story behind the crash remains extremely complex and tricky to fathom. Much has been made of the firing of McDermott’s former boss, Martin Wheatley, and the suggestion that chancellor George Osborne wants to take a more friendly approach to the City.
The question is not, however, whether the state should be nice or nasty to bankers. It’s about how to create an environment in which wrongdoers are caught and fairly punished; in which the public is protected when big financial companies fail; and which facilitates wealth-creation.
This is far easier said than done, and thus it is heartening to hear top regulators recognising the scale of the task at hand and endorsing a sophisticated approach.
Good luck to them both. For all our sakes, they need to do a good job.