Tonight:
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Every time there is a banking crisis, the Bank of England calls for new regulation so it cannot happen again. It got a new Banking Act after the fringe bank crisis of 1973. That did not prevent the demise of either Johnson Matthey Bankers in 1984 or the much more serious collapse of BCCI in the early 1990s, so the Bank called for and got another Banking Act.
That was barely on the statute book when the City was hit by the collapse of Barings in 1995, so of course the solution was yet more regulation and the three-way division of responsibility between the Bank, the Financial Services Authority and the Treasury. That, as we have just seen, failed to head off the Northern Rock disaster. Governor Mervyn King, true to form, called last night for another Banking Act - or as I prefer to think of these ill-conceived bit of legislation, another Financial Dangerous Dogs Act.
The first observation has to be that, if the authorities used the regulations they have properly, there might not be a need for yet more of them. The real lesson from the Northern Rock hearings before the Treasury Select Committee is that there is no substitute for experience.
Clearly Northern Rock slipped through the cracks, but had there been some of the old hands around - people like the long-time Bank of England servant Alastair Clark, who knew everyone in the City and really understood the financial system from the inside out - then maybe the problem would have been picked up in time. Unfortunately, however, Clark retired earlier this year and we can see the gap he left.
The other suggestion gaining a lot of traction is that all bank regulation should be put back in one place, with the Bank of England the preferred option. Before we get too excited, let us remember that the Bank had sole and total charge over Barings. What emerged in the subsequent inquiry into the affair was that the Bank was supplied with a lot of the information it needed to form a judgment, and there was also a whistleblower within Barings who was alarmed at what was going on.
After the collapse, the whistleblower was banned by the Financial Services Authority's predecessor, the Securities and Futures Authority, for not blowing loud enough, while the man in charge of the Bank department at that time retired and went off to be chairman of Celtic. But the really relevant fact is that the people in the Bank failed to grasp the full significance of the information they had, and again failed to respond in time. That is another way of saying that the supervision is only as good as the people applying it.
Today there is a further problem. The Bank of England's supervisory expertise - imperfect though it was - has now gone. The Bank today is full of economists serving the monetary policy committee. Meanwhile, the FSA, which inherited the Bank's team 10 years ago, reflects the bulk of the personnel it has been able to recruit since.
This means it is heavily processdriven. It is rather more than boxticking, but not sufficiently more to cope with the subtleties of a dynamic, fastdeveloping crisis.
Before pressing for all regulation to be moved back into the Bank, we ought to ask whether that organisation is really going to be able to recruit the quality of people today that it could 20 years ago, so there would be a reasonable prospect of its doing the job properly. Not just better than the FSA, but better than with its own scarred track record of Barings and BCCI.
The world has moved on and the brightest of the bright don't go into public service like they used to. The financial system has also moved on, and to a large extent financial innovation is bypassing the banking system and reducing the power of the levers central bankers use to control it. So the supervision job gets ever more complex and demanding, just as the resources to do it become ever more scarce.
I have a different take on the appropriate reaction to this crisis. Accidents happen. We opted for a risk-based approach to regulation, but that has an implicit trade-off. Light-touch regulation allows people space to innovate and helps the City be more dynamic. But because it is light, it carries an increased risk of failure.
So don't complain now that failure has happened. Don't waste time fretting about how it might be prevented in future, because history shows that is also futile. See it instead as part of the price that has to be paid for all the other successes. was so strong when the credit markets were enduring their worst period of turmoil for years.
The sentiment echoed a warning from New Star's John Duffield, who said he thought the uncertainty might well diminish the flow of funds into investment vehicles as the year wears on. That is what you might expect, just as you would expect a declaration of a slower overall rate of economic growth from the Chancellor to diminish investor appetite for shares, particularly when coupled withwarnings of tighter credit and consequent financial distress among individuals and companies that have borrowed too much.
But there has been no sign of that this week, or indeed this month. Shares have risen on both sides of the Atlantic. There are of course some indications of a return to calm, but it is a brave person who thinks the worst has past, for this could easily be a slow-burning crisis with further horror ahead.
Against this, the bulls believe the crisis has brought forward the peak in interest rates, and as these begin to fall it must be good for shares. On one level, this is true. But it displays a rather touching faith in the ability of central bankers to time their cuts correctly, without igniting a further round of inflation. It also puts faith in the power of lower interest rates to ward off the disasters that normally overtake highly borrowed companies in a rapidly slowing economy.
