FAILURE of regulation poses the greatest risk to financial systems, while cooperation among regulators would help to mitigate risks, said Duvvuri Subbarao, former governor of the Reserve Bank of India.

Regulators fail not because they are incompetent, negligent or stupid but for reasons beyond their control, said the former central banker on Monday at a debate on balancing opportunities and risk for finance.

Arguing passionately for his case, Mr Subbarao said regulators have to manage the tension of fostering innovation and preserving financial stability. But if they come down hard on safety, they forgo the benefits of innovation, he said.

“Regulators have to be vigilant, (they) all want to promote business,” he said.

Mr Subbarao was among a group of panelists who were taking part in the 4th OMFIF Asean debate, co-organised with the Monetary Authority of Singapore (MAS), an event preceding this week’s 4th Asean Finance Ministers and Central Bank Governors’ meeting.

The collapse of US investment bank Lehman Brothers 10 years ago set off the global financial crisis and he noted the regulator’s part in allowing subprime mortgage derivative products. Lehman was the biggest…