By Susannah Hammond
LONDON/NEW YORK, Sept. 9 (Thomson Reuters Accelus) – Regulatory forbearance is not a concept that has hit many headlines. It is, however, emerging as an underlying theme in publications by a range of bodies, from the International Monetary Fund (IMF) to the European Union and beyond. Regulatory forbearance is not about supervisory incompetence but, rather, the potential for a fully briefed regulator to decide not to intervene. There may be many legitimate occasions when non-intervention is the right call but, when judged with the benefit of hindsight, more supervisory interventions, made sooner, could have ameliorated some of the worst of the issues arising out of the financial crisis.
As Bank of England governor Sir Mervyn King stated, taking away the punchbowl when the party is in full swing is never an easy decision to make. Regulators, however, must be both capable and willing to take tough interventionist action. Regulators making such difficult decisions need to be assured that they have the backing of the international financial services community, the support of their domestic political masters and, perhaps to a lesser extent, the understanding of the public.