Reshaping the financial system after the storm
The question of the social utility of the financial services and of the appropriate modes of remuneration of its actors has occupied a central place at the G20 meeting held in
The recent interview by Prospect magazine of the FSA Chairman Adair offers a case in point, as does his recent speech at Mansion House. Turner suggests that the financial services sector should slim down to a more ‘socially useful’ size and reduce bankers’ pay accordingly. He also estimates that market deregulation has led to an oversized financial sector. Finally, he proposes that regulators should step in to reconnect the size, profit and pay level of the sector to what is ‘socially optimal’.
Though it may sound intuitive, the idea of a ‘social optimum’ that could be used as a guideline for regulating finance is ambiguous and deserves a close look.