These are the report and comments on the main thrust of the government’s regulatory plans,
As is pointed out here the plans are not taken seriously for two reasons, Firstly the City expects a Tory government within the year and secondly Brown appears to be in a mood to roll over and let his tummy be tickled by the EU as it clamps its version of regulatory processes on us whether we loike it or not. Brown could resist but he won’t!
Christina
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9.7.09
1. UK financial super-regulator will give Mervyn King power to 'bully FSA'
Mervyn King has been given the green light to go head-to-head with and publicly bully the Treasury and Financial Services Authority into taking action to avoid future crises, under new plans laid out by the Treasury.
By Edmund Conway
The Bank of England Governor will be encouraged to use his seat on the newly-created Council for Financial Stability to advise the FSA on when and how to clamp down on the most risky banks. His warnings will be publicly released, giving him the opportunity to chide the banking regulators into being harsher or more lenient on firms as the economy demands.
Mr King will join the Chancellor, Alistair Darling and FSA chairman Lord Turner on the new Council, which will replace the existing Standing Committee of the tripartite authorities and will meet regularly and, unlike its predecessor have to publish minutes and to answer to Parliament. The Council has been framed by the Treasury as the centrepiece of the new reforms, and will use its first meeting to discuss the FSA's approach to bonuses and remuneration at City firms.
However, many experts expressed scepticism that the new body would achieve much more than the existing standing committee, with some speculating that the minutes are likely to be highly opaque, disguising the possible differences of opinion at the meetings.
Nonetheless, the new body may provide some relief for Mr King, who has repeatedly complained in recent months that although the Bank is charged with a statutory role for maintaining financial stability, it does not have direct control over individual banks. Until Wednesday, all it had was its power to influence through speeches and through publication every six months of its Financial Stability Report.
In the future, the Bank will present this report to the Council before publication, along with recommendations as to the actions the FSA should take to clamp down on banks, whether that means, for instance, imposing higher capital requirements or tighter leverage ratios across the board to clamp down on borrowing.
Those recommendations are not binding for the FSA, but they will be published as part of the minutes – something the Treasury hopes will bridge the divide between the Bank and FSA's specialisms of overseeing overall financial stability and individual firms' health respectively.
Treasury insiders described it as a "comply or explain" model which will improve transparency over regulation of the financial system.
Although the Bank warned repeatedly over possible risks facing the financial system in the years that preceded the crisis, some in Whitehall and at the FSA are sceptical as to whether it would have converted such warnings into hard-and-fast action. The idea behind the Council is to push the Bank into making firmer policy proposals on financial stability in the future.
However, despite reports to the contrary, the Council will be chaired by the Chancellor. Likewise, Wednesday's White Paper conceded that due to issues of commercial confidentiality, "a significant proportion of the Council's minutes will not be suitable for publication"
2. King should look past toothless White Paper and beware Tory reforms
So there you have it. A White Paper on reforming financial markets. The long-promised legislative proposals from Alistair Darling. A crackdown on City pay backed by the mighty force of an existing code of practice, no less, which won't name and shame those out of line. They're quaking over in the Square Mile.
By Damian Reece
Banks that want to take risks will have to hold more capital and reserves of the folding stuff – sensible but as much driven by banks and their shareholders as regulators. The three-way split of regulation between Bank of England, Financial Services Authority (FSA) and HM Treasury will be encouraged even further with the discredited tripartite system given a formal committee meeting with tea and biscuits.
This Council for Financial Stability will be a serious event with minutes published, at least those few deemed suitable will be. Most will be kept under lock and key because of commercial confidentiality. What happens after that is unclear although it definitely involves action. What that action is we'll have to wait and see but the new council will certainly "co-ordinate the appropriate response". It's therefore obvious why you should already be feeling reassured that the failings of the tripartite system, which helped allow the credit crisis to erupt, are being well and truly sorted out.
Naturally much of what's in the 176-page document is subject to what happens at the EU level so, as we revealed yesterday, a simple minority vote in Brussels will make much of what the Chancellor wants to do irrelevant.
The far-reaching nature of these proposals to rectify the behaviour of banks led to their shares tumbling between 1.9pc at HSBC and 4.3pc at Royal Bank of Scotland. In all seriousness, the stockmarket's response in part reflected the fact that the White Paper contained nothing surprising or too worrying. But more fundamentally it reflected the widespread belief in the City that these reforms will never see the light of day.
Instead, with an election within 12 months, it was the Tories that many people were paying attention to, not the Government. They intend to abolish the FSA and send most of its staff to work for the Bank of England while a rump will form a regulator to look after consumer financial services.
Certainly the Bank Governor, Mervyn King, wanted more power, but this much? While the Tories' proposals have much to recommend them by re-uniting central banking and financial oversight, they are also heavy with retribution as George Osborne dismantles any vestige of New Labour. Such are the motives of politicians but being caught in the middle will make life difficult for King. As the Tories work to put detail on their proposals, the Governor should exert care in what he wishes for, while he still has the chance.
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