The government should “pull the plug” on problem banks rather than bail them out and imposing tougher regulation on them, Roger Nightingale, strategist at Pointon York, told CNBC Wednesday.
The US government is considering a bill that would impose tighter rules for banks; US Treasury Secretary Timothy Geithner said the financial system was still fragile after experiencing the worst crisis since the 1930s, and the government must add new regulation as well as improving on current ones.
In Europe, various authorities have proposed different strategies, from imposing tough rules on executive compensation to separating the investment and commercial businesses of banks.
“Regulation tends to make problems worse rather than better,” Nightingale said adding that “the banks were helped to far too great a degree a year ago,” and had they not been helped, they would not have been as strong and bonuses wouldn’t have been an issue.
The UK government owns around 70 percent in the Royal Bank of Scotland and more than 40 percent in Lloyds , which has bought lender HBOS, saving it from collapse.
“And now the government comes in and says ‘we’re going to drop the bonuses with regulation,’ how stupid,” he said.
Instead, troubled banks need to be allowed to fail, and governments need to “go and pull the plug. Pull the plug on RBS, pull the plug on HBOS,” he added.
Regulation shouldn’t be the main focus in fixing the global economy, Simon Derrick from BNY Mellon also told CNBC.
“If you’re going to deal with the core causes, then we got to deal with the core imbalance issues in the global economy,” he said adding that the “600-pound gorilla in the room” remains China’s currency policies, not banking regulation.
-For the full interview, see video above