London's role as the world's leading financial centre faces a barrage of hostilities from all quarters and needs huge support if it is to survive intact.

In the worst case scenario, politicians will succeed in exacting revenge for bailing out the banks; a new breed of over-zealous nit-picking regulator emerges to stifle business; ad-hoc interventionism becomes the norm; and the EU uses the crisis as an opportunity to hijack as much of London's comparative advantage as it possibly can.

There are warning signs for all of these undesirable outcomes. A UK treasury select committee report released in May heaped blame for the crisis disproportionately on bankers' bonuses and devoted considerable time and effort to the size of former Royal Bank of Scotland's chief executive Sir Fred Goodwin's pension - a factor of total irrelevance for banking even if significant for domestic politics. It is to be hoped that the current crop of British politicians, subsequently engulfed in a furore over their own expenses and remuneration, are quickly out of the picture - whether deselected or voted out - before they can wreak too much havoc.

A review of the City's future, jointly chaired by Sir Win Bischoff, the former Citigroup chairman, attempted to take a positive stance by emphasising the importance of sensible taxation policies, building up the skills base, regulation and partnership. But on taxation, the UK government has already jacked up its tax take from top earners against all the evidence that such measures actually produce more revenue.

As to regulation, the danger is that banks are faced with a cumbersome rulebook on capital, liquidity, leverage, bonuses, accounting practices and corporate governance that makes life impossible. Or, in other words, a high-octane version of what was already in place and which failed to stem the current crisis.

Regulation expertise

The real key to preventing a banking crisis is to understand how leverage, asset bubbles and questionable business models can store up systemic shocks, and to have sufficient clout and expertise to prevent this. This means initiatives at finance minister and central bank governor level and it means having adequately paid senior regulators who can take a bank to task on its entire structure.

Meanwhile, as the UK authorities stumble about unsure of where to go, the EU is seizing the moment to legislate in such a way that chases business out of London and into Frankfurt and Paris. Its attempts to regulate hedge funds - which were not instrumental in causing the crisis - is one such example.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter