Grossman Speaks on Banking Regulation in Canadian Magazine

Richard Grossman, professor of economics.

In the wake of the LIBOR banking scandal, Richard Grossman, professor of economics, commented in the Canadian news magazine Maclean’s on July 13 about banking regulation throughout history. “It’s guaranteed to be a losing battle,” he said. “The incentives in banking are so strong and the money is so big. As soon as you close off one area, someone is going to think of a new way to do things.”

Grossman stressed that governments and the public have a short memory when it comes to financial crises, so that regulations that seem prudent in one era become the next generation’s “political red tape.”

“The short answer is probably no, we can’t trust the banks to regulate themselves,” he said. “People and institutions react to incentives and there’s a lot of money to be made in financial sectors as long as that incentive is there.”