The US and UK regulators try to play better together

By Felix Salmon
January 22, 2010

There’s a lot of blame to go round for the chaotic implosion of Lehman Brothers in September 2008. But very high up the list is the utter lack of communication and cooperation between authorities in the US and the UK: while panicked all-nighters were being pulled at the New York Fed offices, no one attempted to bring the Brits into the loop until it was too late. And given that the only solution was an acquisition by a British bank — Barclays — the failure to have UK regulators on board proved fatal.

So it’s good news that regulators in the US and the UK have signed a memorandum of understanding, detailing how they’re going to work much better together in future. Except, the MoU only covers depository institutions, which means, I think, that it wouldn’t have helped with Lehman anyway. And then there’s the issue that the whole thing is, in the words of Paul Murphy, “complete guff“. There’s lots of passive voice (“as the condition of a Firm deteriorates, it is expected that cooperation between the Authorities will intensify”), and even more CYA (“This MOU does not create any legally binding obligations, … or confer upon any Person the right or ability directly or indirectly to obtain… any information”).

What’s more, there’s a risk that this kind of thing has the same deleterious effect that bilateral free trade agreements have on the WTO: if the UK and the US think that they have worked things out, then there will be less urgency to put together something genuinely international and comprehensive. So while Murphy thinks it’s all “a bit academic”, I fear it might even work out to be positively harmful.

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