Paul Fisher: The Financial Regulation Reform agenda – what has been achieved and how much is left to do? Speech by Mr Paul Fisher, Executive Director for Supervisory Risk Specialists and Regulatory Operations of the Bank of England and Deputy Head of the Prudential Regulation Authority (PRA), at Richmond, the American International University, London, 30 September 2015. *  *  *  It is now 8 years since the start of the great financial crisis, and 7 years since the collapse of Lehman Brothers and AIG in the United States, followed by the bailing out of HBoS and RBS in the UK. The consequences were not limited to the financial sector – the economic recession that followed in much of the developed world was both deep and prolonged. This naturally created an imperative for changes to the regulation of the financial system to prevent the same thing happening again in future. Since I became Deputy Head of the Prudential Regulation Authority (the PRA) in June 2014, I have been asked a number of times to comment on how far the regulatory reform agenda has advanced. How close are we to ending “too big to fail”? How much more regulatory change can one expect?
And no system should be static, since regulation will need to evolve alongside the business. Will these reforms prevent future financial crises? Almost certainly not. Financial crises have been around for thousands of years (we know that the Romans had them for example) and can be caused by all sorts of unexpected, unpredictable events, including natural catastrophes. We have to assume there will be crises in future. But what the reforms should have done is made the financial system, and its component parts, much more resilient in the face of shocks. Fewer firms should fail, fewer still in a disorderly fashion. Financial instability is therefore less likely and hence there should be greater continuity of financial services. And in consequence of a more resilient financial sector, the wider economy should be able to better withstand shocks with less detrimental effects on unemployment, output or price changes. Has too big to fail been ended? Not yet. The policies being put in place should, however, take us a considerable way towards that objective. It will certainly be a lot easier to handle a major financial firm failure once they are in force. It should be much less likely that public money is required to underpin financial stability in future. Has there been over regulation? The honest answer is: quite possibly, but no one can be sure. This question has many aspects – have there been some reforms that are unnecessary given others?