Risk of over-regulation in crisis

There is a risk of over-regulation in responding to the financial crisis, according to one commentator, and the risk is particularly high in the US with its history of "reactive over-regulation".

Regulation is not a panacea, said Dr John Stuckey, senior adviser at McKinsey & Company and chair of the Australian Securities and Investments Commission (ASIC), at a dinner for the ASIC summer school in Sydney last night.

While acknowledging the need to amend regulations, Stuckey rejected the notion that regulation is a remedy to the current financial situation, saying that we can largely rely on the markets to fix themselves.

Leading a panel discussion on "lessons from the boardroom", he argued that the "goal of regulation is to make markets work better, not kill or stop them".

He added that regulation should help create more standardised products and to inform buyers and sellers in the markets.

"We should, principally, rely on the markets," he said when considering how to address the financial situation. He said markets have responded well to the crisis — discounting equities — noting also that few Australian companies have "gone bust".

Stuckey referred to the "boom businesses" of the past five years, namely hedge funds and private equity, both of which have seen ordinary performance in recent times. He said both are "legitimate and valuable" but they have fallen over.

Stuckey praised the commercial banking sector in Australia, pointing to solid regulation on the part of the Australian Prudential Regulation Authority (APRA) and the decent performance of banks.

He predicted that with the pull-back of foreign banks and recent mergers, Australia will have the "cosiest commercial banking set-up" it has had in a while.