The writer, an FT contributing editor, is chief executive of the Royal Society of ArtsAfter a decade of radical financial regulatory reform, designed to rid the world of institutions that were “too big to fail”, this time was meant to be different. Alas, not. Not only the big (Credit Suisse) but the medium-sized (SVB) were found to matter, the safety net was again distended, and the best-laid regulatory plans perished in their first brush with reality.
There are positives to take from the latest crisis. So far, we are suffering financial casualties rather than full-blown collapse, a credit squeeze rather than crunch. Some equity-holders (in SVB) and bondholders (in Credit Suisse) have borne the burden. Government support has been in guarantees of deposits or losses, not direct equity injections.
Yet in other respects this financial melodrama feels eerily familiar. It is a centuries-old story of policymakers talking tough then bending the knee, fearing the collateral consequences of sticking to their plans. We remain caught in a “doom loop”, with insured risk-taking begetting further risk-taking.