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Analysis & opinionJanuary 8 2007

US sees folly of heavy-handed regulation

This may be the year that the US pendulum swings away from excessive regulation towards balanced principles.
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The penny has dropped. Overly detailed regulations and excessively prescriptive rules are not well suited to maintaining regulatory effectiveness as market practices evolve rapidly and as globalisation continues to accelerate. These comments from the chairman of JPMorgan Chase, William Harrison, are part of a new Institute of International Finance (IIF) set of proposals for a comprehensive strategic dialogue with the regulators of the financial industry, including a set of key principles designed to frame relationships between regulators and the financial industry.

In short, regulation is coming in for a major rethink. And it is not just bankers through their Washington-based institute, the IIF, who are trying to secure far-reaching reforms; it is also the US secretary of the treasury, Hank Paulson, former chairman of investment bank Goldman Sachs. In November, following the US mid-term elections, Mr Paulson called for a fundamental re-examination of the way the US regulates its capital markets to ensure they remain globally competitive.

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