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Risk – Regulation – Common Sense – who is winning?

Clearly common sense has lost. I think a lot is due to the increasing demand of regulation. Let’s look at mortgages or business loans. Obviously there is a risk for the borrower and for the lender. But it seems that regulation treats everything the same. A first time buyer who is looking for a £100,000 representing 80% of the value is clearly taking a different risk than a millionaire business person who wants to borrow £1 million on a £5 million value. Clearly the borrowers are taking different risks and the lenders have to use a different risk analysis. But we all know, this is not what is happening, and clearly we need a different regulation for each scenario. However if we need different regulations for each scenario then regulation will increase out of proportion (one could actually say that is has already happened).

And this is why I want to come back to common sense. If borrowers and lenders both apply common sense then there would have been much fewer self-certificate mortgages, buy to let mortgages, unsustainable business overdrafts, over geared development transactions etc. In other words regulation does not take away the need for common sense.

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