Market Obstruction

Financial Adviser

In some academic courses on financial regulation they talk about regulatory capture, by which is meant that the most senior and experienced regulators can often be “captured” by the big providers through the offer of top jobs with huge salaries.

The theory behind it is that although regulation continues from day-to-day, the people with the corporate memory come and go like an occupational carousel.

But that is missing the point. Regulatory entrapment, as some people prefer to call the flip side, is not the only major flaw in any regulatory system; there is also the re-invention of best practice, the ever evolving ideas that become policy with little, or very little, consideration for their impact on the sector under scrutiny.

Article continues after advert

Take residential mortgages, a subject that we do not apologise for having to return to: about a month ago the long-awaited mortgage market review kicked in and with it the promise that lending will be much better supervised and affordability, no matter how superficial, will become the benchmark for lending.

Nothing about losing one’s job the week after having secured a mortgage, or indeed about a newly married couple changing their minds about not having kids, as they have a moral and legal right to do, appear to have been part of the discussion.

But surely, implicit in the MMR was that tougher interviews, with intrusive questions about one’s lifestyle would see only those who could afford a mortgage under various stress tests getting a mortgage.

Yet the regulators still seem to want to put their sticky fingers in the mix, unless there is state intervention those in authority seem not to believe they have power and influence to shape the market.

Forget for the time being the systemic importance of the residential housing market to the real economy and just concentrate on mortgage lending as a market; is it not surprising how often the authorities threaten to interrupt the ordinary workings of a free market?