Regulators ‘not clever enough to see big picture’

“One sometimes feels that this financial system is like some incredibly complicated waterbed, when you try and deal with something here and then something happens at the other end,” Lord Turner said in an interview with Prospect magazine. “We’re just not clever enough to see it,” he added.

He is worried that the US financial industry is persuading lawmakers to row back a sweeping reform of Wall Street known as the Dodd-Frank Act.

The legislation aims to curb the excessive Wall Street risk-taking that nearly levelled the financial system. It subjects the $600 trillion global derivatives market to regulation, increases banking oversight and creates a new consumer protection bureau, among other measures.

“What is going on in Congress is deliberate action to starve some US regulators of funds, which I think has a degree of motivation coming out of some financial interests through campaign money to members of Congress,” he said.

Lord Turner, a senior member of the G20 leading economies’ Financial Stability Board, appeared to back further money printing or ‘quantitative easing’ by the Bank of England to stimulate a UK economy some analysts see going into a recession.

But he does not believe an economic crash and depression is likely.

“The world will not go into a 1929-33 depression unless we deliberately fail to do things we are capable of doing. We have the tools to prevent that.”

But he was less confident that Western economies can avoid Japanese-style stagnation.

He expects global finance to shrink once all the tougher new bank capital and other rules have been applied.

The FSA is being scrapped next year and will be replaced by two new regulators, one inside the Bank of England, the other a standalone consumer watchdog with no role for Lord Turner so far. He has been touted as possible governor of the Bank of England but would not be drawn on his next job.

“I think first of all, I’ll just have a very, very long sleep. And then beyond that, I’ll do something else,” he said.