“A beefed-up Bank of England with draconian new powers” is at the centre of Tory plans to restore faith in the banking system, says Katherine Griffiths and Patrick Hosking in The Times.
George Osborne, the shadow chancellor, described the regime created by Gordon Brown in 1997 – the tripartite system made up of Treasury, Bank and Financial Services Authority (FSA) officials – as a “failure of historic proportions”. He plans to return responsibility for banks, building societies and insurers to the central bank. The FSA will be stripped of its role in policing the City and rebranded the Consumer Protection Agency.
What has been billed as a “complete overhaul of the supervisory architecture” will, say critics, amount to little more than shifting 500-odd staff from Canary Wharf to Threadneedle Street, says Simon Duke in the Daily Mail. It’s also debatable whether the Tories’ new Financial Policy Committee, sitting solely within the Bank, will be any better at predicting crises than the government’s proposed Council for Financial Stability.
But one outcome is guaranteed: the FSA will be plunged into morale-sapping uncertainty – likely to last until well after the general election – at a time when it should be focused on reducing risk. True, says Alex Brummer in the Daily Mail, but at least Osborne is “on the right track”. The FSA has been a “disastrous bank regulator”.
Several survivors of the crisis testify it “did not have a clue when it came to macro-regulation”. The Old Lady, in its everyday money-market operations, has direct contact with banks and so has to be the “right institution for the future direction of banking”.
What really impressed about the Tories, says Tracy Corrigan in The Daily Telegraph, was not the decision to scrap the FSA, but their acknowledgement that regulatory reform involves “striking a delicate balance between championing the consumer, protecting the taxpayer and maintaining the international competitiveness of the financial services industry”.
They also tackled hard questions head on, including the impact of tighter capital and liquidity regimes on global economic growth, European regulation (a Tory Treasury minister would be based in Brussels to keep it in check) and the UK banking system’s continued reliance on state support.
They need to do a lot better than that, said Anthony Hilton in the Evening Standard. If the Tories’ so-called White Paper on the future of banking regulation is the best they can do, then “Lord help us when they have to sort out the whole economy”. Abolishing the FSA is “plain stupid”. It may have “screwed up”, but there were plenty of disasters on the central bank’s watch. Remember Barings in 1995?
It would be more sensible to allow the FSA to learn from its mistakes than to create a new system, which will take ten years to bed down. But my main worry is that it is far too simplistic to say, as Cameron and Osborne did, that the banking crisis was due to regulatory failure. Deeper causes include the shift of power from the US to China; technology, which has propelled us into a world of “virtual finance”; and the globalisation of markets which means the banking system is now “much bigger than the countries that control it”. The list goes on. “Suffice to say that not one of the Tory proposals comes close to addressing any of it.”