Wood, Geoffrey; Kabiri, Ali --- "Firm Stability and System Stability: The Regulatory Delusion" [2011] ELECD 496; in LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder (eds), "Managing Risk in the Financial System" (Edward Elgar Publishing, 2011)

Book Title: Managing Risk in the Financial System

Editor(s): LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857933812

Section: Chapter 11

Section Title: Firm Stability and System Stability: The Regulatory Delusion

Author(s): Wood, Geoffrey; Kabiri, Ali

Number of pages: 13

Extract:

11. Firm stability and system stability:
the regulatory delusion1
Geoffrey Wood with Ali Kabiri

11.1. INTRODUCTION

When the regulators examine the grocery business in the UK they are
invariably concerned with competition. Is one firm or another too domi-
nant? Is it treating customers appropriately? How is it treating its suppliers
and its small competitors? In short, is the industry competitive is always,
in one form or another, the question that is being asked. Concern is often
prompted by the (entirely inappropriate) test of market share. A question
that is never asked is how robust a particular individual firm is.
This is distinctly odd to anyone familiar with regulation in the financial
sector. In the UK, a question that is always in regulators' minds is how
stable a particular firm is. Why is that not asked of firms in the grocery
sector? Banking services are important, but so, after all, is the supply of
food. Yet the regulators never worry about what would happen if, to take
a wildly implausible example, Tesco were to fail overnight.
Why is that question not asked? The answer is surely in two parts. First,
and very important for the failing firm's suppliers and employees, there is
for such firms a well-established and well-tested insolvency regime. That
regime has for many years worked well in the sense of enabling orderly
winding up or selling on of insolvent businesses, and has done so within a
time period which in most cases has ...