US warns against light touch bank rules that ‘ended tragically’ for UK
The US urged other countries to avoid a “race to the bottom” with new financial regulations – and pointed to the experience of the UK to show the dangers of experimenting with “light-touch” rules.
Tim Geithner, US treasury secretary, said the UK’s strategy before the banking crisis had ended “tragically”.
Taxpayers ended up pouring £65bn into Royal Bank of Scotland and Lloyds Banking Group, as well as nationalising Northern Rock, and were last night sitting on £15bn of losses on their stakes in the bailed-out banks.
“The United Kingdom’s experiment in a strategy of ‘light-touch’ regulation to attract business to London from New York and Frankfurt ended tragically,” he said in a speech in the US.
“That should be a cautionary note for other countries deciding whether to try to take advantage of the rise in standards in the United States,” Geithner added.
His remarks will be seen as aimed at fast-growing Asian economies rather than the UK, which is now overhauling its regulatory regime – although bankers argue that the new rules on bonuses adopted in the City are tougher than on the other side of the Atlantic in Wall Street.
“As we act to contain risk in the US, we want to minimise the chances that it simply moves to other markets around the world,” Geithner said, as he warned of the risks of “regulatory arbitrage” if countries did not agree global rules.