A good little note on reflections following the GFC and the ramifications for regulation generally and Australia in particular. Curiously, he does not talk about wholesale debt guarantees, just deposit guarantees:
'Australia’s recent regulatory experience in utility industries provides broad lessons for financial regulation. Regulation limits profits. Regulated firms wish to raise profits. This leads to a fundamental conflict between the regulator and the regulated firm. Good regulation recognises this conflict. It does not try to perfectly regulate the relevant firm. Perfect regulation is impossible. Good regulation sets out clear broad rules for the regulated firm so that managers can operate their businesses effectively. But good regulation evolves – it recognises where a rule is not working appropriately and allows for dialogue between parties to fix the problem. Good regulation may involve simple clear second–best rules, such as rules that simply ban a regulated firm from engaging in certain activities or owning certain assets or operations. These rules are crude – but that is why they work. They are hard to manipulate. Finally, good regulation recognises where competition can and cannot work. Where competition can work, let it work. But where competition cannot work, recognise this and do not try and impose a competitive solution on a regulatory problem."
