Regulators Should Accept Crisis Blame

23^rd May 2011

Financial Times (FT.com)

Sir, Donald Kohn has fudged his apology for the failure of regulators to prevent the financial crisis by stating that most of the blame should be on the private sector (“Kohn apologises for Fed role in crisis”, May 18).

I beg to differ. Once the regulators allow an institution to take additional risks, and consequently report better short-term profits, its competitors will find it irresistible, not least due to market pressure, to follow in piling risk and catch up on profits.

The actions of a single institution are quickly transmitted across the whole market unless the regulator intervenes to abolish risk taking or the provision of adequate capital there against in the first place.

The primary responsibility remains with the regulators, and the 2008 crisis was truly and squarely a failure of regulation.

Alfred Mifsud