"Losing all your money promotes the best regulation." I paraphrase a comment in the Financial Times last week. This is not what the Tanaiste and the Minister for Finance want to hear, as they contemplate setting up a single regulatory body for all financial services.

There is a lot of smoke and shrapnel around after the Magill AIB article. Some basic things are getting clouded over. For example, how were consumer interests and the interests of customers of the bank, damaged by the existence of 53,000 bogus non-resident accounts? Clearly, a lot of customers thought it in their selfish interest to maintain such accounts. The damage was not to the customers of the bank, but to taxpayers.

The response to regulate more effectively in consumers' interests doesn't follow from this controversy.

The guardian of the taxpayers' interests is primarily the office of the Revenue Commissioners. It is the regulator of tax compliance. No new single regulator will replace that role or could add much to it. It is also obvious that ensuring the solvency of banks and insurance companies is vital to consumers' interests. A fraudulent rip-off of additional interest or fees is bad, but losing all the depositors' money is surely worse.

That's the context of the Financial Times quote. It was made in relation to the failure of Long Term Capital Management and the risks involved in hedge funds. The best discipline for institutional investors, who should know what they are doing, is failure. There are funds where the minimum investment is $1 million (£663,000) and investors are required to confirm that they can bear the loss of their entire investment. That's the way it is for some institutional products.

But of course, retail investors - including many fund managers when they are at home - can't bear this loss of capital and haven't the expertise or time to assess the risks involved. So, in steps the regulator to protect the consumer. We shouldn't forget in our righteous anger as taxpayers that solvency matters an awful lot to us. This is what is concerning international regulators looking at Japan. The balance of evidence is that the Central Bank has served consumers well in this regard. That may also be obvious, and defensive of "official Ireland", but it is true, too.

What problems will a single financial services regulator solve? Specifically, are the problems vexing us now - NIB, Irish Life, AIB and so on - likely to be prevented by a single regulator alone? Clearly not. As pointed out by the IBA's Paul Carty among others, the quality of information flows will matter a lot. Information flows between the divisions of the one regulator could be worse than between different regulators. Fundamentally, there is the problem of how far we want regulators to go. They cannot check everything a financial institution or its employees do; they cannot absolutely prevent fraud. But we might be tempted to ask them increasingly to regulate products, not just the product providers. Taken too far, this could be a serious mistake.

For example, in Britain, there is a raging debate over whether the government should endorse certain pension products with its "kite mark" logo. The industry has, rightly in my view, pointed out that government approval of certain products could end up misleading people as badly as previous pension misselling scandals. The government would end up as a quasi-financial adviser, without knowing its clients' diverse needs and circumstances. In Germany, life assurance products had to be approved by the regulator. The regulator would circulate the industry with a new product idea from one company. The result was that product innovation was utterly stifled and life assurance products ended up as very bad value to customers.

Taken to its limit, we would nationalise the financial institutions altogether, as Deputy Joe Higgins advocates. Then we would need no regulators at all, since we know that publicly-provided services are always clean, customer-focused, and good value.

One final point. There is surely an inconsistency in principle in saying we must have public disclosure of Ansbacher account holders, but we don't need disclosure of 53,000 bogus non-resident account holders. One could argue that zeros matter - few Ansbachers, with large amounts, may be corrupting the system, lots of "BoNRAHs", with small amounts, but also corrupting the system in their own way.

Raw political logic demands the outing of Ansbachers - no politicians included, we understand - as much as it means that no TD (in Tralee, especially) seeks the outing of a sizeable number of constituents as tax cheats. But sure isn't consistency the product of small minds?

Oliver O'Connor is an investment funds specialist