Looking at the current state of the economy, it seems regulators all over the world have been doing a pretty poor job. It would make some sense to suggest that the best and brightest graduates follow private sector career paths (better paid - more chance for career development, etc) than public sector career paths, where the money is always less good. In theory, if the government paid people more money, they’d attract better people, who would be much sharper at spotting future economic catatrophes.
For example, there are a great deal of lawyers, economists, accountants, etc, in government agencies that handle regulation and review of banks, funds, trading operations, etc. but are there many skilled [senior level] quants, especially those who have trading experience?
Having quants who understand the pricing, assumptions made, what is behind models and “black boxes” and who have worked with traders, would seem like it would help the agencies.
I wonder how many trading firm quants there are at the regulators.
However, as everyone seems to be losing their jobs at the moment, perhaps there will be a natural influx of people to public sector positions anyhow!