History has a way of repeating itself, particularly when it comes to the world of finance. Developed economies, like the UK and the US, often ride the wave of a boom, only to come crashing down in a predictable bust. Time and again, we’ve seen the pendulum swing between growth and crisis—a cycle fuelled by the easing of regulations in the name of economic expansion. Yet, it seems we’ve forgotten the hard-learned lessons of the past.
In the UK, the Financial Conduct Authority (FCA) recently announced its intention to strip away “unnecessary” regulations, responding to government calls to remove barriers to economic growth. This move, outlined in a letter to the Prime Minister, proposes reforms aimed at simplifying rulebooks, reducing reporting burdens, and making it easier for firms to grow. While this might sound like a logical step to spur economic activity, it raises a crucial question: are we setting ourselves up for another catastrophic failure?
A Pattern We’ve Seen Before
Globally, there is a worrying trend of politicians and policymakers being swayed by banking and financial lobbies. The promise of short-term growth often takes precedence over long-term stability. In the US, warnings from financial watchdogs, such as Dennis Kelleher of Better Markets, point to a potentially devastating financial crash. Kelleher notes that history shows a lag between deregulation and disaster, with periods of artificial liquidity and unchecked risk-taking inevitably leading to economic collapse.
This isn’t hyperbole—it’s history. The “roaring ‘20s” led to the Great Depression. The “great moderation” of the early 2000s paved the way for the Great Recession. More recently, deregulation during the Trump administration contributed to the 2023 banking crisis (note 1), which saw three of the four largest bank failures in US history. And now, as new waves of deregulation are announced, the same mistakes threaten to repeat.
Deregulation: A Double-Edged Sword
The FCA’s plans include a range of measures: streamlining lending advice for mortgages, simplifying reporting requirements for 16,000 firms, and even removing the Consumer Duty board champion. These changes are designed to encourage innovation, capital investment, and economic growth—all worthy goals. But at what cost?
History shows that when financial institutions operate without sufficient oversight, the risk shifts from the banks to the public. Consumers bear the brunt of reckless behaviour through job losses, foreclosures, and financial insecurity. As Kelleher aptly puts it, “Banks don’t act recklessly or break the law—bankers do.” Without meaningful accountability and personal consequences for bad actors, the cycle of boom and bust continues.
Learning From the Past
The 2008 financial crisis should have been a turning point. It revealed the devastating consequences of deregulation and the systemic failure of oversight. Yet, despite investigations and criminal referrals, not a single Wall Street executive was prosecuted. Instead, banks were bailed out with taxpayer money, while millions of ordinary people lost their homes, jobs, and savings.
In the UK, reforms like the Senior Managers and Certification Regime (SMCR) were introduced to hold individuals accountable for their actions within financial institutions. Now, even this framework is being made “more flexible” in the name of growth. Such moves risk undoing years of progress in creating a safer, fairer financial system.
A Call for Balance
Regulation and growth are not mutually exclusive. A well-regulated financial system fosters trust, stability, and long-term economic health. Deregulation, when taken too far, undermines these foundations, creating a house of cards that inevitably collapses.
As policymakers consider the future of financial regulation, they must strike a balance between fostering innovation and protecting the public. This requires not only listening to industry leaders but also heeding the warnings of independent experts and watchdogs. It demands a commitment to accountability, transparency, and fairness.
What Can We Do?
For individuals, now is the time to stay informed and vigilant. Understand the risks associated with financial deregulation and advocate for a system that prioritises people over profits. Support organisations that promote consumer rights and financial education.
For regulators and policymakers, the path forward must be guided by lessons from the past. Growth is important, but it should not come at the expense of stability and fairness. We need a financial system that serves everyone, not just the powerful few.
A Final Thought
As we move into 2025, the world stands at a crossroads. Will we repeat the mistakes of the past, or will we chart a new course that balances growth with resilience? The answer lies in our willingness to learn, adapt, and demand better from those in power. Let’s not wait for another crash to remind us of the cost of forgetting.
Notes:
(1): In 2023, the United States witnessed a significant banking crisis marked by the collapse of several prominent banks, underscoring the importance of robust financial planning and risk management.
Silicon Valley Bank (SVB): In March 2023, SVB faced a sudden bank run after revealing substantial losses from the sale of its Treasury bond portfolio. This disclosure led to depositor panic, resulting in the withdrawal of $42 billion in a single day. Consequently, the California Department of Financial Protection and Innovation closed SVB, marking it as the second-largest bank failure in U.S. history.
Signature Bank: Shortly after SVB’s downfall, Signature Bank was shut down by the New York State Department of Financial Services. The bank had been grappling with significant outflows, and its closure was deemed necessary to protect its assets and maintain financial stability. This event stands as the third-largest bank failure in the nation’s history.
First Republic Bank: In May 2023, First Republic Bank, known for catering to affluent clients, failed following substantial losses in its investment portfolio due to rising Federal Reserve interest rates. This failure further emphasized the vulnerabilities within the banking sector during periods of economic fluctuation.
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