Australia Central Bank's Stevens Says Too Much Regulation May Hurt Economy

Potential global finance industry regulations must balance the prevention of market crises against the risk that limits on banks may restrict economic growth, Australian central bank Governor Glenn Stevens said.

“The objective should be to foster arrangements that preserve the genuine benefits of an efficient and dynamic financial system, but restrain, or punish the really reckless behavior that sows the seeds of serious instability,” Stevens said today in Perth, without addressing current monetary policy or the nation’s economy.

The speech is Stevens’s second in less than a month aimed at what he describes as an international debate that has “of late been consumed with issues of financial regulation: how to re-design it, and generally increase it.” President Barack Obama last month signed the toughest set of U.S. financial- market rules in seven decades.

The drive to regulate the finance industry after the recent global financial crisis and subsequent recession is “understandable and it is entirely appropriate,” the governor told a gathering at the University of Western Australia.

“My point is simply that we have been here before,” he said, citing tighter regulations that were introduced in the U.S. and elsewhere after the Great Depression in the 1930s.

Cost to Economy

The aim of current efforts “shouldn’t be to suppress finance again to the extent it was for so long in the past,” Stevens said. “There would be a cost to the economy in attempting this, and in any event the financiers will be quicker to figure out the avoidance techniques than they used to be.”

The U.S. bill includes a regulators’ council to monitor companies for systemic risk and a way of closing large financial firms whose collapse threatens economic stability

Stevens said the ideal financial system should be what was “once described as ‘the handmaid of industry’,” where banks facilitate transactions, foster trade and bring savers and investors together.

“We don’t actually want too many of the financiers to be ‘masters of the universe’,” he said. He also said it would be undesirable for the financial system to be “simply an arm of the state either, subject entirely to bureaucratic or political direction.”

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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