Tim Geithner, the US Treasury Secretary, yesterday attacked the UK's lax pre-crisis financial regulation as he warned countries against adopting soft rules to lure new business.
Mr Geithner said any jurisdiction that is hoping to boost its status as a financial centre by undercutting the US's tougher regime should beware of Britain's fate in the financial crisis.
"The United Kingdom's experiment in a strategy of 'light touch' regulation to attract business to London away from New York and Frankfurt ended tragically," he told a banking conference in Atlanta.
"That should be a cautionary note for other countries deciding whether to try to take advantage of the rise in standards in the United States." Britain crowed about the success of its "principles-based" regulation before the crisis as business moved to London from New York and other financial centres.
However, the run on Northern Rock made the UK a laughing stock and the later bailout of RBS and other banks forced taxpayers to stump up nearly £1 trillion in investments and guarantees. The Financial Services Authority has since admitted it was too soft in regulating companies and will be broken up next year, with its supervision powers transferred to the Bank of England. Mr Geithner called on Europe to join forces with the US to stop the Asian markets from undermining new global rules to encourage companies to shift their operations there.
"As we act to contain risk in the US, we want to minimise the chances that it simply moves to other markets around the world," he said. Singapore and Hong Kong are the leading candidates to benefit from a clampdown on risky activities in the US and Europe.
HSBC and Standard Chartered in Britain have both said they could move their headquarters to Asia if the UK regulatory regime gets too tough. But the US and Europe still differ on their revamped approach to various key rules, including bank capital, derivatives and bonuses.
Michel Barnier, the European commissioner for financial markets, last month urged Mr Geithner in a letter to work to harmonise rules. He argued that the European Union was ahead of the US on capital rules and on clamping down on bonuses. Mr Geithner yesterday called for some common rules on how much collateral is required for derivatives transactions.