Fixing the UK’s banking woes may not be a simple matter.
There appears to be a significant rift forming with regard to changes required for the regulation of the UK banking sector, to avoid a systemic failure as was evidenced in 2007. A report released today by the Treasury select committee expressed concerns about the way in which the government is pursuing reform, based on the white paper recently put forward by chancellor Alastair Darling, in which proposed reforms to the sector are seen as little more than cosmetic.
The white paper, released early in July, calls for a ‘health warning system’ similar to those for fatty foods and tobacco products. The chancellor is looking for improved regulation, better management of banks and a better deal for consumers. Lord Turner, chairman of the Financial Services Authority, has made 27 recommendations to avoid another systemic failure of the sector, and Darling intends to implement them all, though he is likely to acknowledge that it will not be possible to implement them all at once. One of Darling’s main concerns is that the consolidation of the banking industry since 2007 has lessened appetite for competition in the sector. Competition has indeed been weak due to the stranglehold of the major players.
The Treasury select committee has condemned the government’s approach as merely endorsing the present system with only minor changes, and not considering the remedies required to prevent the kind of reckless practices that lead to the current crisis.
The committee’s main concern, however, appears to be with the dysfunctional nature of the relationships within the tripartite group set up to oversee banking reforms. The group consists of the Bank of England, the Financial Services Authority, and Treasury. The Treasury select committee, in its report released today, said it was “…extremely perturbed by the evidence from the governor of the Bank of England that he was kept in the dark over the contents of the white paper to the extent that he had ‘no idea’ what it would contain, or even when it would be published…”
When questioned (see comments beginning 10.08am) by select committee chairman John McFall, Prime Minister Gordon Brown dodged questions related to the exclusion of the governor, Mervyn King, from the development of the paper, and made no comment on McFall’s assertion that the tripartite group had no cohesion.
It is not clear, in news reports, where King differs in opinion from the proposals in the white paper, except insofar as the select committee declared the government should not be allowing banks to grow “too big to fail”, but ensuring instead that there are no banks that are “too big to save.”
Tags: Bank of England, banking reforms, chancellor, FSA, Treasury select committee