China's Wen Blames Crisis on Lax Controls
Tuesday, February 3, 2009
LONDON, Feb. 2 -- Chinese Premier Wen Jiabao, after a meeting here with British Prime Minister Gordon Brown on Monday, said that a lack of effective regulation had played a key role in unleashing the global financial crisis and its "disastrous consequences."
"Some financial institutions pursued profit in a blind way, without effective regulation," Wen said, adding that the crisis "shows how dangerous a totally unregulated market can be."
The Chinese premier's comments came two months before President Obama, Wen and other leaders of 20 of the world's largest economies meet in London to discuss a new system to monitor the global financial system.
Brown, who will host the meeting, has spearheaded calls for an international watchdog, saying, "You can't deal with the problems of global financial markets with national systems of regulation."
Regulation is an issue that arouses particularly strong feelings in London, which has grown into a leading financial center in recent years in part because of its reputation for light regulation.
Many in the City, as London's financial district is called, have cautioned against overloading banks, insurance companies and other financial institutions with new bureaucratic rules, saying it would strangle future growth.
But political leaders, citing the overwhelming public outcry over a crisis that has sent housing prices plummeting and unemployment skyrocketing, are pushing for greater government oversight over a financial industry that is widely seen as out of control.
Adair Turner, Britain's top financial regulator, said Monday that the "horrendous instability" in the markets because of the crisis has left "little appetite" for light regulation.
"People realize that the cost of having gotten the regulatory system wrong is hugely higher than if we had regulated more tightly in the first place," Turner, head of Britain's Financial Services Authority, said in an interview.
Turner has called for, among other things, requiring banks to build up substantial capital in good economic times that can be used in bad times. He has also called for stricter regulation of investment banks, hedge funds and other institutions in what he has called the "shadow" banking system.
But many say they are worried that the hedge funds, foreign banks and other financial institutions that moved to London in recent years -- as the city promoted itself as an easier and less bureaucratic place to do business than its rival New York -- will leave.
Eamonn Butler, director of the London-based Adam Smith Institute, said there is likely to be "overkill" when it comes to new regulation. That could "gum up financial markets," he said, and prove so costly that it drives all but the biggest players out, hurting competition.