This report starts with the Conservative Home’s summary . Most of these and others I had lined up but it serves as an introduction!
The FT seems to be getting alarmed at the possibility of a Tory government with the number of hostile stories mounting. Today they attack the Tories over their Ofcom proposals, the plans to drop Labour planning short-cuts over wind-farms . I am not impressed by their limp-wristed reaction to these proposals .
I’m even less impressed with The Times who a[ppear to writing with a degree of ignorance of what is proposed and why.
The Guardian must be contemplating its response!
Christina
CONSERVATIVE HOME Blog 21.7.09
FT attacks Osborne's banking reforms but most newspapers applaud them
"All in all – and taking into account the disruption they will cause – these plans are unwise. [ - - - GIVEN IN FULL BELOW] - FT leader
"The White Paper rightly comes out against splitting commercial from investment banking, on the grounds that such a move would threaten competitiveness. [ - - - GIVEN IN FULL BELOW]" - Telegraph leader
"The Tories want to hand the real power to the Bank of England, and they are right that the buck must stop somewhere and the Bank is the best option." - Mail comment
"When it comes to what the regulating should consist of, rather than its structure, the Tories have largely adopted mainstream views. Banks should hold more capital, leverage shouldn’t be excessive and global agreements are the way forward." - Allister Heath in City AM
TELEGRAPH
21.7.09
1. A coherent Tory solution to the banking crisis
Telegraph view: George Osborne's White Paper on banking regulation and financial reform is succinct and radical.
At this point in the political cycle, the Opposition must look and sound like a government in waiting. David Cameron has already shown that he has the right stuff to lead not just his party, but the country. But nagging doubts have lingered over the capacity of some of his senior lieutenants to make the grade. This concern has been particularly acute in relation to George Osborne, the shadow chancellor. While he has recovered from his career-threatening Corfiot encounter with a yachting Russian oligarch, his injudicious (and swiftly abandoned) suggestion this month that the Tories might scrap tax relief on debt showed a worrying clumsiness.
This characteristic is not, thankfully, in evidence in Mr Osborne's White Paper on banking regulation, which manages to be succinct, coherent and radical. Its starting point is the failure of the tripartite system of financial regulation created by Gordon Brown to see the banking crash coming, let alone to take remedial action. The fuzzy lines of responsibility inherent in the regime meant that the warning signals, of which there were plenty, were never acted upon.
Mr Osborne's proposal to restore to the Bank of England the regulatory role it held until 1997 is therefore welcome, as is the replacement of the Financial Services Authority by a new Consumer Protection Agency. The creation of a Financial Policy Committee to monitor systemic risks fills an important gap, while the promise to appoint a senior minister to defend the City's interests in Brussels addresses a long-standing complaint that this Government has been feeble in its attempts to fend off damaging new European financial regulations. The White Paper rightly comes out against splitting commercial from investment banking, on the grounds that such a move would threaten competitiveness. It chooses instead to try to curb the City's casino tendencies by giving the Bank of England powers to impose much higher capital requirements on high-risk activities.
These are sensible measures, designed to prevent a repeat of the financial crash that tipped us into recession. More immediately pressing, however, is the need for Mr Osborne to bring the same sort of clarity of thinking to bear on how an incoming Conservative government would get our part-nationalised banking system to function efficiently again. And on the wider economy, the time has come for a clear statement of unambiguous Conservative principles on debt, spending and taxation. With a general election less than a year away, political positioning must be replaced by the clear enunciation of the values on which the economic policies of a Conservative government will be built.
2. George Osborne answers some tough questions on financial reform
The shadow chancellor's plans for financial reform are more than soundbites, writes Tracy Corrigan.
It's not that the abolition of the FSA is insignificant. It may even be true, as the Tories argue, that "the most important flaw in the British regulatory system was that nobody was responsible for putting together all the different warning signals and acting on them", though it is hard to imagine that global financial meltdown would have been avoided if only the tripartite system had functioned better. Certainly, the Government's answer to this structural weakness – a new committee to improve communications between the Treasury, the Bank of England and the FSA – looked embarrassingly inadequate.
But re-grouping regulators under new names – what Vince Cable called "shoving around bureaucratic furniture" – is no guarantee that errors will not be made in the future, as they were in the pre-FSA past. Without the tools to ensure that banking is conducted on a sounder basis, structural reform is bound to fail.
In reality, many Tory proposals for regulatory action are similar to those in this month's White Paper. This is no surprise, since Tory policy, like the Government's, is rooted in Lord Turner's post-crisis review, with its focus on systemic risk and additional capital requirements for risky activities and predatory bonuses.
In the areas of both structure and competition, however, the Tories are more radical. First, with the abolition of the FSA, the Bank of England would take over banking supervision, while a new consumer protection agency would bring together the relevant parts of the old FSA and the Office of Fair Trading. That leaves market regulation and supervision – the bit of the FSA that deals with insider trading and market abuse. There is a plan to consult on this issue, but the result seems likely to be a merger of the rump of the FSA with the Takeover Panel and the Financial Reporting Council.
Second, the Tories are homing in on competition, with a plan to investigate the impact of the disappearance of numerous foreign and domestic banks from the retail market. In both areas, the Government now looks weak as a result of its apparent reluctance to draw attention to the failure of the tripartite regime and the negative impact on competition of the merger between Lloyds and HBOS that it facilitated.
The Tories deserve some credit for tackling these issues, but they were obvious targets. I am more impressed by their willingness – on paper if not, so far, in public – to acknowledge 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.
For once, the Opposition did not baulk at raising some difficult issues – that tighter capital and liquidity regimes could have an impact on global economic growth (they note, for example, that we are actually asking banks to set aside more capital in a downturn).
There are other hard questions. The UK banking system is still reliant on substantial state support for funding as well as capital – how will it be fixed? Will a Tory government really have the clout to fight off European regulation? Should more be done to rein in continuing excess? And what will happen if the banks run out of capital again, as seems increasingly likely if the recession persists? These issues still need to be tackled – but at least the Tories seem willing to make a start.
FINANCIAL TIMES
21.7.09
Osborne’s cleaver
George Osborne has the instincts of a barber surgeon. The Conservative party’s shadow chancellor, who may be running the Treasury after the general election that is due by next summer, wants to hack up the Financial Services Authority and to stitch most of its responsibilities on to the Bank of England. His objectives are reasonable, but he proposes much more brutal saw-work than is strictly necessary or wise.
Under Mr Osborne’s proposals, the Bank of England would be responsible for almost all financial supervision, possibly even including markets. Meanwhile, a new consumer protection agency would take on most of the few remaining roles outside the proposed Threadneedle Street empire.
By contrast, under the government’s proposals, the Bank and the FSA would remain separate institutions, both with mandates for systemic stability. Co-ordination would be improved by forcing the two institutions to meet regularly, along with the Treasury, and publishing minutes of their discussions and conclusions.
There is logic to the Tory position. They, quite rightly, want to dovetail financial stability policy with monetary policy. A major flaw of the government’s plans is that the Bank is too weak to guarantee this outcome. But this could be corrected simply – by giving the monetary authority a veto over FSA plans and the power to direct the supervisor to take action.
Such delicate adjustment of the government’s proposals would have significant advantages. An independent FSA, jostling for prestige, has an incentive to challenge the Bank. Under the leadership of Lord Turner, the FSA has led the British debate on financial reform.
Under the Tory plans, however, an unchecked and unchallenged Bank may fall into groupthink about financial stability – as it did during the decade before the crisis. The Conservatives propose recruiting a handful of outsiders to sit on a financial policy committee to inject intellectual competition into the monetary authority. But it is unrealistic to expect these few people to spot and counter biases across the Bank’s domain. [The FT misses the point here comprehensively! The Bank already has a Monetary Policy Committee which works well. The Tories propose a parallel Financial Policy Committee staffed with the same level of expertise but the Bank would not only act as arbitrator but would be provided with the tools for the job -cs]
All in all – and taking into account the disruption they will cause – these plans are unwise. They are also a distraction from the Tories’ better ideas, such as improving banking competition policy. And they will make the FSA’s task more difficult over the coming year. A little keyhole surgery on the government’s proposals would yield better results than these plans for wholesale butchery.
THE TIMES
21.7.09
Shuffling the bank regulators’ chairs
David Wighton: Business Editor’s commentary
George Osborne’s paper on financial regulation contains many very sensible suggestions. Indeed, many of the sensible suggestions are remarkably similar to the sensible suggestions in Alistair Darling’s paper two weeks ago.
The problem is that the flagship policy of the package and the big dividing line with the Governnment — the proposal to shift banking supervision back from the Financial Services Authority to the Bank of England — is among the least convincing.
The current arrangements of the regulatory deckchairs may not be perfect. But the previous arrangement wasn’t perfect, either.
Bank supervision was taken away from the Bank of England partly because it was seen to have done a poor job spotting the danger signs at BCCI and Barings.
It was handed to the FSA, where all the high-flyers thought that the route to stardom was to spot the next fraud or mis-selling scandal rather than to analyse the business model of some Newcastle-based former building society.
Sure enough, the next problem turned out to be Northern Rock, not Bernie Madoff (that was somebody else’s problem).
You can be sure that Sod’s Law would apply if supervision were sent back to the Bank. There would be a huge fraud that would be missed by an institution focused on capital ratios, liquidity cushions and remuneration policies. [The proposals for a separate arm of the bank - the financial policy committee - parallel to the Monetary Policy Committee would bring ‘in house’ the responsibility and would obviate the lucicrous proposals by the government to have a new Committee sitting between the FSA and the BoE with no responsibility for anything except to issue minutes of the coordination committee’s meetings. The failed system didn’t lack people to issuue warnings! It lacked anybody with the responsibility or power to DO anything. -cs]
Mr Osborne supports his case for locating bank supervision in the central bank with a couple of quotes from Ben Bernanke, who says how handy it was for the US Federal Reserve that it combined both roles. Since the Fed was not conspicuously successful in heading off the credit crisis, this is hardly compelling.
Mr Osborne would scrap the FSA and “the failed tripartite system” and create another tripartite system involving a new consumer watchdog as the third leg. Quite where the FSA’s responsibility for markets and securities regulation ends up is not clear.
As Richard Lambert of the CBI pointed out yesterday, what matters is what regulators do, rather than where they sit. The benefits from shuffling the chairs are at best unproven. What is all too certain is the cost. The regulators at the FSA are now faced with a prolonged period of uncertainty, just when they should be concentrating on their jobs, followed by enormous and expensive upheaval.
At least when Gordon Brown moved supervision from the Bank he announced it after the election — though that timing was probably just as political as Mr Osborne’s.
Posts
