LONDON – When I became the head of banking supervision in the United Kingdom in the mid-1990s, my friends did not see it as a glamorous or exciting career move. Banking regulation was an obscure task, like cleaning sewers: essential, perhaps, but hardly front-page news. Expressions of curiosity about how I spent my working hours were typically a sign of friendly politeness rather than genuine interest.
Twenty years later, the structure of banking regulation in Europe has risen to the top of the political agenda in London. It is one of the key points in Prime Minister David Cameron’s renegotiation of the UK’s terms of membership of the European Union.
One of Cameron’s four major demands of the EU is a national derogation from elements of the uniform rulebook which the European Central Bank is seeking to introduce in the eurozone’s banking union to ensure a consistent approach across countries. The French and others fear that this derogation could permit the UK, in search of competitive advantage, to loosen financial regulation in London, even though recent evidence suggests that bank capital requirements, and other controls on banks’ activities, are in fact now tighter in London than elsewhere in Europe. For example, there is no European equivalent of the British requirement to “ring-fence” retail and commercial banking, and the French and German governments’ opposition suggests that there is unlikely to be one.
Of course, the reason why banking supervision – and financial regulation more generally – has higher political salience now is obvious: The financial crisis of 2008 showed that bank failures could have catastrophic consequences for the economy as a whole.