One of the less-discussed features of the financial crisis has been the collateral damage it has inflicted on the confidence of companies large and small.
As a corporate user of wholesale banks, WPP has suffered like others from reduced liquidity in financial markets. We worry that continuing instability threatens to choke off investment and delay economic recovery. And as the crisis drags on, we worry that the steps taken so far to address it have been inadequate.
The response of European and other authorities around the world has been poor. What the crisis exposed is not so much insufficient regulation as a catastrophic failure of supervision at multiple levels.
It is now clear that the authorities did not fully understand the consequences of the repeal of the Glass-Steagall Act in the US and of the Big Bang changes to financial markets in the UK. They failed to give sufficient consideration to the dangers in combining financial market trading activity with commercial and retail banking. These are fundamentally different activities requiring different management skills and a different approach to official supervision.
Supervisors need to have a much broader ability to conduct prudential checks on individual banking groups. Central banks should have a clearer view of the big picture – of institutions' total exposure to sectors and markets – and therefore be in a better position to provide guidance when an individual bank has potentially troublesome exposure. Such a singular focus on supervision would have highlighted much sooner the dangerous exposure of banks to the "shadow banking system", for example – and permitted the authorities to take avoiding action.
In the US and Europe there is a common desire to reduce the risks. The problem is that different countries are trying to do this in different ways: in the US through efforts to impose the Volcker Rule that seeks to ban banks from proprietary trading; in the UK by ring-fencing a bank's retail activities from investment banking.
In a world of large, diversified, global financial institutions, no country can act in isolation; international co-operation is mandatory. But despite the ambitious promises made by the Group of 20 leaders in 2008, we have seen the semblance of international co-operation more than the reality.
The US has been ploughing its own political furrow. EU leaders have been caught between the conflicting desires to shore up the euro, restore financial discipline and protect their domestic banks. Asian countries have scarcely joined in the regulatory drive, creating the risk of regulatory arbitrage.
It is not therefore surprising that markets are unsettled. To regenerate confidence in the system, governments should give more autonomy to supranational institutions such as the Financial Stability Board, combined with a stronger brief to co-ordinate monetary stability with national central banks.
Without reform, we need to be clear that the problem of some banks being "too big to fail" is still with us. In a global marketplace, it is impossible to let major international banks fail without putting the very functionality of financial markets at risk.
Meanwhile, the various regulatory machines are in overdrive and will probably generate a surfeit of rules that will create more problems than they resolve. There is pressure, for example, to tighten regulation of the use and trading of derivatives. Such actions would be unwelcome if they impaired companies' ability to hedge their risks.
It was not, after all, non-financial corporations that caused the financial crisis. It will be hardly fair if they have to suffer from regulatory efforts that increase bureaucracy and cost.
The author is CEO of WPP plc. A longer version of this article appears in the book "Investing in Change", commissioned by the Association for Financial Markets in Europe (www.afme.eu)