The Northern Rock, which publishes its results today, used to be a building society. They were rather conservative institutions, whose role was to take money from cautious savers and lend it to people buying homes.
But in the Thatcher years, they found themselves suddenly able to become banks, and swap the dull world of bricks and mortar for the exciting world of international derivatives. A few didn't take up the offer, recognizing that their customers actually preferred savings accounts that were dull but safe. Some, like Northern Rock, grabbed the chance. And this being a competitive market, the Rock rushed after market share. Unfortunately it rushed after market share at the expense of good business, and came a cropper.
Some folk think that this Thatcherite deregulation is the sole cause of our present problems. That's wrong. Firstly, it was quarter of a century ago, and lots of other things have happened since. Secondly, to me it shows more the folly of regulation, rather than deregulation. If you minutely regulate your business institutions, then suddenly set them free, you might well expect them to do a lot of silly things. Like all those East Europeans, after the Berlin Wall came down, rushing into the West to spend their life savings on the Mercedes Benz they'd always dreamed of. The lesson isn't 'don't deregulate' - the lesson should be 'don't over-regulate in the first place'. And if you're going to cut back on regulation, maybe it's best to do it gradually so that euphoria doesn't overwhelm everyone all at once. The deregulation of the alcohol licensing laws might provide us with another example.
Should we then go back to tighter regulation? To force banks to separate their day-to-day small-saver business from their high flying money market activities? Bring back Glass-Steagall? No, we shouldn't. After this little lot, customers will be demanding that for themselves. And bankers will be well aware of what sort of a mess they got themselves into by mixing and matching different kinds of business. Regulation, as we now all realize, is a very powerful tool. It's such a shame that it's wielded by people who plainly don't have the competence to handle it.