Earlier in the month, George Osborne spoke in the Commons about putting the Bank of England back in charge of banking supervision.
In a speech today (also trailed yesterday in the papers and through this interview with Andrew Marr) the shadow chancellor will expand upon his plans to abolish the Financial Services Authority.
The Financial Times splashes on the story today and explains that a Conservative Government "would give a “strong and powerful” Bank the job of supervising banks, building societies and other big financial institutions" and "a remit to stop dangerous imbalances and risky behaviour from threatening the whole financial system".
Mr Osborne describes the tripartite system of banking regulation as "not up to the job... not fit for purpose” and the FT explains his proposals thus:
Mr Osborne would reform the Bank, including creating a financial policy committee with outside experts. It would be given tools to protect the financial system, including the power to set a “backstop” leverage ratio, new liquidity requirements and counter-cyclical capital ratios. Big banks with retail and investment arms would not be broken up – Mr Osborne admits that Britain could only act if other countries did the same – but they would have to hold more capital to reflect the fact that they benefit from an implicit taxpayer guarantee.
The rump of the FSA would be turned into a consumer protection agency. To guard against excessive European financial regulation, a Tory government would have a Treasury minister “based in Brussels” and Mr Osborne would attend the monthly Ecofin meeting of European finance ministers.
The FT has a full transcript of its interview with George Osborne here and I'll add a link to the speech and any pertinent extracts later this morning.
Update: The White Paper, Plan for Sound Banking has now been published and is available here to download.
Conservatives.com provides the following five bullet point summary:
- The Bank of England will be responsible for macro-prudential regulation, with the power to call ‘time on debt’ in the economy.
- It will also be responsible for the micro-prudential regulation of all banks, building societies and other significant financial institutions, with the power to regulate their pay structures, risk, complexity and size.
- The Financial Services Authority (FSA) will be abolished, and a new Consumer Protection Agency created instead. This will be given a mandate to act as a consumer champion, and will be a much more consumer-orientated, transparent and focused body than the FSA.
- Britain's interests in Europe will be protected, and a senior Treasury minister with responsibility for European financial regulation will spend as much time as necessary in Brussels to defend our national interest.
- The Office of Fair Trading and the Competition Commission will conduct a focused examination of the effects of consolidation in the retail banking sector.
Jonathan Isaby
8.30pm: The FT judgment is pretty negative: "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."
