Today’s pointers on the economic crisis
First . Osborne in ridiculing the the idea that he’s in cahoots with Mervyn King gives an unguarded [but deliberate ?] insight into life in the Bunker.
Then Northern Rock surfaces again. This bank is not just slow to recover , it is getting worse and costing us billions. They’ve chosen a warm sunny summer Saturday to let this cat out of the bag. Why do they want to save it? The depositors are guarranteed.
Then we have Lord Pooh-Bah getting his own parochial consumer credit tweaking in the way of the urgent restructuring of bank regulation. The restructuring is urgent and Mandelson is probably only being used as a lame excuse . We have no government.
Christina Speight
BBC - Radio 4 - ‘Today’ 08:20 27.6.09
Osborne: Allegation that King too cosy with Tories "frankly ridiculous"
•George Osborne MP, Shadow Chancellor of the Exchequer
Mr Osborne rejected claims that the relationship between Mervyn King and the Conservatives was too close, and confirmed that he feels the Bank of England should have much more power.
Put to him the claim that Mervyn King’s relationship with the Conservatives has been too ‘cosy‘ he said: “I think that allegation is frankly ridiculous. I do see the Governor, as does David Cameron, but when Gordon Brown was shadow Chancellor he saw the then Governor, Eddie George.
“These are allegations which are simply not true, they are made by Labour Cabinet ministers, sometimes the Prime Minister in private.”
He also said: “I’m clear that the Bank of England does need much more power. I think it was a mistake of the Bank of England increasingly to become just a monetary authority.
He described the tripartite system as “one of the biggest mistakes” made by Gordon Brown, and added “the tripartite system has simply failed”.
He also said that the Conservatives were considering whether micro prudential regulation as well as macro prudential regulation should go to the Bank of England.
TELEGRAPH 27.6.09
1. Billions extra in state aid for Northern Rock
Billions more of taxpayer's money than previously disclosed to be given to the nationalised mortgage lender.
By Philip Aldrick
The Government will lend Northern Rock billions more of taxpayer's money than previously disclosed under plans to restructure the nationalised mortgage lender.
In documents to the European Commission, the Government also warned it may have to inject more than the planned £3bn of capital "in a stress
scenario".
Northern Rock and the Treasury have worked hard to limit the taxpayer's exposure to mounting losses. They now plan to restructure it into a separate bank, with capital requirements of 8pc, and a "regulated mortgage lender", which requires 1pc capital reserves.
The vast majority of Northern Rock's assets, about £80bn, will go into "AssetCo", absorbing around £1bn of capital. Some £10bn of mortgages, £5bn of cash and £5bn of the state's £10bn loan will be put into "BankCo", along with £20bn of retail deposits.
If the EU gives the plan state aid approval, "BankCo" will increase lending to £24bn by the end of next year, absorbing about £2bn of the capital.
Northern Rock hopes to raise another £1bn by buying back its subordinated debt at a reduced price. But, with a third of the book in negative equity, "AssetCo could require support of around £Xbillion* to cover a capital shortfall in 2010-2011", the document said. *The actual amount is removed.
Futhermore, AssetCo will receive "a working capital facility of up to £Xbillion* in addition" to the stated increase in the state loan. *The actual amount is removed.
The document adds: "This structure will assist a return of BankCo to the private sector at an earlier date than otherwise be the case."
2. Government lambasted for further regulation reform delay
Postponement of White Paper adds to fears that it is no closer to overhauling the banking system.
By Edmund Conway, Economics Editor
The Government has been accused of causing "chaos" after it postponed its eagerly awaited White Paper on financial regulation, fuelling fears it is no closer to overhauling the banking system.
Having already been stripped out of the Budget in April, the White Paper – the key legal document laying out the future for the way Britain regulates its financiers – was slated for publication this Wednesday. However, the Treasury has now delayed it until "early July".
The White Paper is due to set out the parameters of an improved system of regulation for banks, hedge funds and other institutions. Among its objectives is to ensure that in the future banks are not allowed to become too big to fail, and that they can be easily wound up rather than needing public bail-outs. The US and European Commission have both laid out their own plans for regulatory overhaul, raising questions about why the UK proposals have so far failed to materialise.
The Treasury said yesterday that the delay was because next week two other White Papers – one from the Cabinet Office on "Building Britain's Future" and another from the Department for Business on consumer affairs – are slated for publication. But, given the importance of the financial reforms, and the repeated controversy surrounding the document, the delay started speculation that there are major behind-the-scenes troubles in its drafting.
The Bank of England Governor, Mervyn King, told the Treasury Select Committee earlier this week that despite being one of the key protagonists in UK financial stability, he had yet to be sent a draft copy of the White Paper or even consulted on its contents. Although Chancellor Alistair Darling insisted the following day that he had spoken with Mr King, suspicions abound that the tripartite authorities – the Treasury, Bank and Financial Services Authority – are at loggerheads over the composition of the new regulations.
The Shadow Chancellor, George Osborne, said last night: "This is complete chaos. Yesterday, the Treasury were briefing newspapers about planned reforms to financial regulation that they were planning to publish next week. Now they have had to cancel those plans and put off publication until next month.
"In the middle of a financial crisis we need a sure touch and that's not what we're getting from the Treasury."
In what is likely to cause further consternation, it has emerged that the White Paper will not provide answers to the key questions occupying the City's mind: what instrument will the authorities use to constrain banks' balance sheets in the future, and who – the Bank or the FSA – will wield these macro-prudential tools? Instead, it will merely map out broad menus of options that the Government is considering. Actual substantive changes to the regulation may not be confirmed until later in the year, and possibly next year.
Simon Morris, partner at City law firm CMS Cameron McKenna said: "I think this is extremely unsettling. It is extraordinary when the Bank of England Governor has not been consulted on something as fundamental as this. That we now hear it has been delayed further can only generate serious uncertainty."
THE TIMES 27.6.09
Regulatory revamp on ice as Mandelson’s credit crackdown storms to centre stage
Katherine Griffiths and Gary Duncan
The Treasury has shelved plans to unveil its vision for the future of financial regulation next week because it does not want to be overshadowed by a rival initiative from Lord Mandelson to launch a wide-ranging crackdown on consumer abuses.
Lord Mandelson, the Business Secretary, who gained enhanced powers this month in a Cabinet reshuffle, is planning to unleash sweeping reforms designed to stop controversial practices by credit card groups and other non-mainstream lenders.
Among the activities that will be banned are credit card companies increasing customers’ spending limits without consulting them and forcing the providers to make a priority of using customers’ repayments to reduce the loans that are on the highest rates. Some card firms direct customers’ payments to the least expensive debt first, so maximising their profits.
Lord Mandelson, who has faced accusations of dramatically enhancing his fiefdom with the creation of his new Department for Business, Innovation and Skills, is planning to publish his White Paper on Thursday.
The timing means that he will be able to trumpet the reforms to MPs on the Commons Business and Enterprise Committee a week on Tuesday.
However, his plans have derailed the Treasury’s intention to publish its eagerly anticipated document, which was also due on Thursday.
Instead Alistair Darling, the Chancellor, is expected to publish the document the following week.
The delay may be seen as another setback for the Treasury, but it may also give the Chancellor more time to try to resolve disagreements over the details. The Treasury has been caught up in a row with the Bank of England and Financial Services Authority (FSA) over who should wield the ultimate authority in regulating banks, in order to prevent a repeat of the mistakes that led to the financial crisis last year. Mervyn King, the Governor of the Bank, sparked a furore with his Mansion House speech last week when he openly challenged some aspects of the Chancellor’s approach.
The Treasury’s paper will be something between a White Paper, which lays out detailed policy plans for reform, and a Green Paper, which sets the debate for wider consultation.
It is expected to map out a new approach to regulation — which will focus on spotting broad risks to the financial system as well as looking at individual firms — but it will not spell out who should wield specific powers.
Treasury insiders denied that plans to extend the role of the FSA in policing banks would risk fuelling conflict with the Bank. Officials confirmed that a new Banking Act this autumn will give the FSA a wider remit encompassing the overall stability of the financial system. But insiders insisted that the shift in the FSA’s role would not create an overlap with the Bank of England’s responsibilities.
In a move that officials insisted was mainly technical, the changes will place a statutory duty on the FSA to consider the impact on the wider stability of the financial system as it carries out its oversight of individual institutions. While the FSA will therefore have to consider implications for the system as a whole, it will remain the Bank’s job to oversee that system and ensure its stability, officials said.
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