Five years after the Lehman Brothers collapse, have efforts to reform finance been a success?
“The financial system has undoubtedly been strengthened since the financial crisis, as banks have delevered and built up capital and liquidity. Much of this was necessary – as banks were too leveraged and under-capitalised in the run up to the crisis. But it has come at a cost. That cost has come in terms of exceptionally weak credit growth which, in turn, has acted as a major drag on economic growth. Many regulators argue that this was a price that had to be paid. We believe, however, that the transition could have been better managed and that any further drive to safer banks should be gradual, to permit banks to utilise their stronger positions to fund credit growth. If such pragmatism is not forthcoming, then areas like the small and medium-sized businesses sector – where loans require high levels of capital – will continue to find themselves starved of credit. The capital Taliban now need to take a back seat.”