David Cameron say the Conservatives would bring "law and order" to the financial markets

David Cameron has spoken this morning at a conference at the London Stock Exchange on "the Regulation of Capitalism in the Post Bureaucratic Age".

The latest in a series of speeches on economic policy, it follows on from his significant speech in Birmingham ten days ago in which he admitted the Conservatives had been slow to criticise the burgeoning levels of debt.

In today's speech, he says that the Conservatives want to bring "law and order" to the financial markets and a sense of social responsibility to the City.

He said:

"People don't want to abandon markets, they want us to reform markets so they work properly.

"What they want is a sense of order and social responsibility brought to the operation of the financial markets. And that is a task for the modern Conservative Party.

"We are the party of law and order. So we are the party to bring law and order to the financial markets. We are the party of social responsibility. So we are the party to bring social responsibility to the financial markets.

"For too long, our market has been governed by the destructive idea that you can take what you get, however you can get it. We need to change the culture in the City so people understand they don't just have a responsibility to themselves - but to society too."

Mr Cameron emphasised his desire to restore the role of the Bank of England in regulating the level of debt in the economy, criticising the FSA for failing in its regulatory duties and attacking the Government for introducing the Tripartite system of regulation:

"To police responsibility within our financial services, we need to call on the only institution with the authority, respect and influence to keep our banks in check. It’s time to bring back the Bank of England and restore its role in regulating debt. When Labour took away this role back in 1997, the Bank of England’s banking expertise was allowed to wither away. We will rebuild that expertise by giving the Bank an explicit role in macro-prudential, system-wide, regulation.
 
"We will put the Bank of England back in charge of regulating the overall level of debt in the economy, and allow it to make judgements on what is sustainable and what is not. The Bank will set out any concerns in a letter to the FSA, which in turn will be obliged to take that view into account when setting the amount of capital individual banks must hold.
  
"So if the level of debt in our economy is growing unsustainably, the Bank will instruct the FSA to ensure banks either slow their lending or put aside more capital."

He also talked about the need for action on a global level:

"That means reforms to the Basel II agreement to make it less procyclical – so that banks put more money aside in the good years, to act as a buffer in the bad. And it means a greater role for the IMF in monitoring national economies – as well as a way of ensuring that its warnings don’t go unheeded as they did over the last few years.

But the ultimate authority, he said, must remain with the Bank of England.

"It used to be said that one twitch of the Governor’s eyebrow would be enough to get our banks to behave responsibly. Our plans will restore the power of the Governor’s eyebrow. But as Sir James Sassoon has said in the review he recently carried out for us, the Governor’s authority works best when it is backed up by real power. So we are considering the suggestion that we should give the Bank of England further power to go into individual banks…to tell them they haven’t got enough capital, tell them there’s too much leverage, tell them to sort themselves out......or expect the full authority of the Bank."

Jonathan Isaby

Comments

[ToryBlog.com - Usual health warning about me to please the Editor :-)]

In short, Cameron seems to be promising rules changes that will mean no more "boom and bust".

I wonder why no-one has thought of that before...

[Alex]

This is good sensible stuff. We should also clearly say that individual bankers are not above the law either.

We musn't let the current crisis undermine the drive to liberalise markets, boost liquidity and encourage entreprenuers.

Yet at the same time, we must say that while we don't object to bankers being paid a bonus when they do well, if they break the law, deceiving customers and shareholders, then they should answer to the full force of the criminal law.

We want HONEST hard-working people in the city, who aren't too risk averse but at the same time play by the clearly set out rules.

[David Belchamber]

This is very good to hear; the only criticism is that it has taken a catastrophe to get the leadership to articulate these things. Peter Lilley in 1997 and various other conservatives since then - e.g. John Redwood, Howard Flight, Michael Fallon and Michael Howard - have been pointing out such things over the years.

We have lacked a co-ordinated and coherent message over the past few years. Let us all speak with one voice now - and loudly!

[Malcolm Dunn]

The Bank of England is far from being a perfect insitution. Several bad things happened on its watch in the '80's and 90's (BCCI,Johnson Mathey etc) but it is better by far than the FSA which has a reputation of routine failure.

[oldrightie]

Excellent well thought out speech. Expect zero debate from The BBC.
I did enjoy this, however!

http://broganblog.dailymail.co.uk/2009/03/king-pulls-the-rug-out-from-under-brown.html

So much for Brown taunting that we are isolated, yesterday.

http://broganblog.dailymail.co.uk/2009/03/king-pulls-the-rug-out-from-under-brown.html

[pp]

Asking the free market to be 'socially responsible' will work about as well as asking MPs to show integrity when claiming expenses.

Even Brown has admitted that he isn't sure that any amount of regulation could have headed off the recent crunch.

Forget regulation - just insulate the public purse from commercial risk, and let the markets do what they do best - let the bad companies fail, and tax the good ones.

[ToryBlog.com - Usual health warning about me to please the Editor :-)]

"Asking the free market to be 'socially responsible'..."

..is like asking charities to be more profit-focussed.

[RichardJ]

"Mr Cameron emphasised his desire to restore the role of the Bank of England in regulating the level of debt in the economy,"

That would be the BoE that helped cause this crisis by holding interest rates too low?

[Jake]

Law and order yes,
And the application of common sense.
And a jiudicial enqury to get the crooks.

[snegchui]

"That would be the BoE that helped cause this crisis by holding interest rates too low?"

Interesting one that. Both Eddie George and Mervyn King were outvoted consistently on rate cuts - and have quietly said so. SO just how independent were they?

[Tom H]

"Both Eddie George and Mervyn King were outvoted consistently on rate cuts - and have quietly said so. SO just how independent were they?"

I'm not sure what you mean. Quietly said so to whom?

The voting records on the Bank of England website show that (as far as I can see) Eddie George was never outvoted by the MPC and Mervyn King has only been outvoted twice since becoming Governor.

http://www.bankofengland.co.uk/monetarypolicy/decisions/decisions97.htm

[Paul]

Noting the criticism of the creation of the FSA by Peter Lilley, was this one of the policies (along with the minimum wage) that Portillo agreed with in his first speech in the House as shadow chancellor?

[Peter Buss]

Oldrightie - you ae right to query whether the BBC will go on this but its not just them - I don't expect the DT to give it prominence going on their past record where every utterance of Browns is giving star treatment, but those of Camerons are sidelined - unless as over the weekend its bad news. Frankly, Cameron gets far better treatment in news covereage from the Guardian. In myv iew, both the mail and the telegraph ae an utter disgrace in the way they treat Cameron.

[Ad]

Well i wouldn't worry too much about the mail it's so right wing it's a joke. Good speech from Cameron though. He must keep trying to articulate that it is reformed capitalism that will get us through this crisis not big government!

[snegchui]

Tom H;
You are correct that the Spreadsheet speaks for itself in voting totals. I have not expressed myself clearly. My understanding is that Eddie George and Mervyn King were subjected to severe arm twisting before meetings.
I would suggest that Iain Dales' contacts might be investigating this further as they were keen to establish Eddie's thoughts on the new regulatory structure brought in by GB who seemed to "get his way" an awful lot of the time.

[David Belchamber]

A fascinating question, Richard J:

"That would be the BoE that helped cause this crisis by holding interest rates too low?"

Can we possibly believe that the MPC were naive enough to set interest rates on the basis of an artificially low index of inflation?

Did none of them ever query the value of using the CPI for this exercise and did none of them foresee the possible consequences?

[pp]

If the latest news is right - and the markets have underminded gordon browns quantative easing programme by refusing to buy his gilts - then it maybe that the markets are actually rescuing us from a financially inept government.

If so - well done the markets - maybe they realised that the people of this country may well not prepared to foot Browns Big Bill.

I hope the tory front bench take this on board too.