At last, it seems that the Shadow Cabinet has finally got the message that banking and insurance sector regulation and control should be put back where it belongs – back in the safe hands of the Bank of England. So, given that they actually win the next election, it will be a big if you have done, thanks for coming bye-bye to the Financial Services Authority in its present form – assuming of course that the Tories are as good as their word. Instead they actually propose to turn Gordon Brown’s leviathan FSA creation of all consuming power into a meaningful consumer protection unit taking away some previous duties and responsibilities of the Office of Fair Trading in the process. So far, so good but what a pity that while Shadow Chancellor Osborne has listened to sound advise on banking regulation and control and seemingly responded accordingly he remains obsessed to the ridiculous notion that the biggest of our banks might need to be broken up on the basis that consumer are losing out. OH dear, what are we to do! I am almost lost for words that for some reason it seems that Mr. Osborne and his colleagues actually believe that there should be an optimum size for a bank…….
True, Mr. Osborne is playing to a wide gallery of voter concern stirred up by the press and while seeking to play the good guy is seeing the matter of bank size purely in the eyes of the British consumer. This totally ignores the fact that most bank income and thus the benefit to the wider UK economy and exchequer comes from other sources. To play in international markets, to compete in wider markets and to bring in the sort of income that Britain will soon be crying out for requires that our banks need to be large. Of course, it is right that consumers needs to be protected and it may well also be right to look at whether the size of some banks means that the consumer is losing out. Have another inquiry by all means but my best guess is that it will probably confirm that the consumer has actually benefited from having wider competition and choice by allowing banks to function in a free and uninterrupted market process. Please though don’t do a Gordon Brown attempting to blame all the problems that we have seen on the banks themselves failing to accept that government got it wrong too big time and that if banking regulation had been left where it was the mess that is now being swept up may have filled a lot less bins.
Critics have been quick to shoot down the Osborne plan before it had even been formally announced. Of course, some of those putting their heads in the ring such as Lord Myners have already been discredited so we won’t too much worry about them. Others such as Lib-Dem Treasury spokesman Vince Cable appear to have finally gone off the rails if it really is true that they are blaming the last eighteen months mess purely on the size of banks as opposed to the failure of those charged with regulation within the Tripartite agreement from correctly doing their job. Overall I for one welcome the Osborne plan though I would wish that he had gone very much further – kicking away any idea once and for all that the European Union should become the primary regulatory authority for all banks. No thank you – Westminster may be far from perfect but it should in my view retain total authority over all matters of regulation and control of British based banks whether they are domestically or foreign owned. So, come on Mr. Osborne, please stick your head over the parapet and say that any attempt to allow the EU to influence UK bank regulation and that might destroy the huge competitive advantage that British banks have earned will be shot down in flames.
As a final thought I might add the remark that changing course, following eleven years of Tripartite Agreement operation, would not be as easy as it sounds. For example, when the Tripartite Agreement first came into operation in 1998/9 it is my understanding that the many of those empowered with commercial bank regulation responsibility at the Bank of England then moved over to the FSA. What happened to them after that is anyone’s guess. True also that while there are two sides to every story it might well be right to say that the Bank of England record on regulation up until 1998 was not exactly covered in glory. I am thinking here about the Bank of Credit & Commerce International (BCCI) even though I fully recognise that the BoE was not responsible for the manner in which BCCI was suddenly closed down. My point though is that to effect a sound and responsible regulatory policy will require a lot more than the just a simple handover and the BoE poaching a few hands back from the FSA. I am of course a great supporter of the Bank of England and particularly the Governor though I also recognise that the BoE missed more than the odd trick on Northern Rock over the years. So, to ensure that such failures do not occur again in our lifetimes again requires a back to the drawing board approach by the BoE – a complete new strategy that is designed for a very different and far more international banking and insurance sector than the one that existed back in 1998.
