HONG KONG (Reuters) - The head of London’s financial centre criticised U.S. financial regulators during a visit to Hong Kong on Wednesday, saying their reliance on rules had blinded them to the risks of subprime lending.
John Stuttard, Lord Mayor of the City of London, said U.S. regulators had failed to stop the subprime mortgage crisis from worsening because U.S. banks had been allowed to wrongly assess the risk of lending to people who were unable to pay back loans.
“The banks in question did not assess the risks properly,” Stuttard told a briefing. “If you’re lending to someone with no income, no job and no assets, this is high risk. And yet this was not being properly controlled.”
He said the U.S. system had run into trouble because it was based on rules. By contrast, the British and Hong Kong systems, which he described as the best in the world, focused on risk, helping companies to manage and assess it.
“This is the problem with New York at the moment. Unfortunately they’ve got themselves into a tangle. Their regulator environment is heavily influenced by lawyers. They have a lot of class actions.”
Stuttard said a global financial system based on risk — rather than rules — would remove the kind of systemic risk that produced the subprime crisis, a factor factors thought likely to lead to a slowdown in world economic growth.
“If we can work together to try and find the right regulatory framework, then the global finance houses around the world will succeed and there will not be systemic risk.”
Stuttard, whose trip to Asia also included stops in Beijing, Shanghai and Seoul, also said U.S. regulators had scored an own-goal with the Sarbanes Oxley Act, introduced in 2002 after scandals such as the collapse of Enron Corp.
“The Sarbanes-Oxley legislation has been a real deterrent for foreign companies and even American companies listing on the NYSE and on Nasdaq,” said Stuttard. “It’s difficult for them to get out of this situation which they now find themselves in.”
“New York’s listing process is very long and stringent and burdensome. Sarbanes Oxley introduced a tremendous plethora of requirements that listed companies have to comply with.”