John Kay explains a fundamental problem:
The search for a cadre of people employed on public-sector salaries to second guess executive decisions is a dream that could not survive even the briefest acquaintance with those who actually perform day-to-day supervisory tasks in regulatory agencies. They tick boxes because that is what they can do, and regulatory structures that are likely to be successful are structures that can be implemented by box tickers.
He also has this gem:
Perhaps the most fundamental confusion in the evolution of financial services regulation is the equation of financial stability with the survival of established institutions. If I had a million pounds for every time I have heard a possible reform opposed because “it wouldn’t have prevented Northern Rock or Lehman Brothers going bust”, I might now have enough money to bail out a bank.
The objective of reform is not to prevent Northern Rock or Lehman going bust. It is highly desirable that organisations such as Northern Rock or Lehman should go bust.