The blame game is in full swing again today as accusations are being thrown about by top members of the Financial Services Authority (FSA), reports Times Online. High-ranking officials have pointed their fingers at some of the biggest building societies in Britain, who are being accused of ignoring numerous warnings and threats put forward by the FSA to stem borrowing.
Nick Lock, the manager of the FSA’s retail firms division, spearheaded the criticism. Hugh May, quoting Lock at the Building Societies Association (BSA) annual conference in Harrogate, stated that ‘we have seen unsustainable margins on prime-lending, over-ambitious growth targets and a risk appetite that was too great’. May also points out that there were ‘fundamental mispricing and inadequate investment in risk management’.
A number of building societies have been hitting the wall over the last 12 months. Scarborough Building Society has been rescued by Skipton and in March Nationwide bought the best bits of Dumfermline which had incurred losses amounting to £26 million.
Building societies had apparently ignored warnings from the FSA which had been repeated ‘over and over again’. But this only illustrates the argument that financial turmoil is not due simply to the building societies and financial institutions, but also to the lack of regulation.
Why did the FSA have no teeth to ratify their warnings? It is surely their job to prevent this situation occurring. It’s ot hard to see why building societies and all financial institutions have exploited the deregulated system for all it’ worth. A little reading into rational choice theory and Mancur Olson’s collective action problem can even describe how it has actually been rational for financial institutions to act greedily in a situation where regulation is sparse (Olson and his counterparts in game theory and collective action problems stipulate that irrespective of whether you choose to benefit or not from greedily exploiting a market, your rivals will, which will be to your detriment; firms are myopic especially as long-term goals require irrational collective action).
It is strange therefore that the FSA readily decides to stand up and show how impotent and pathetic it has been in reigning in their greedy subjects - perhaps in admitting their weak behaviour they will be allotted more powers in the upcoming regulation proposals.
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