Business

Tuesday June 30, 2009

Britain to keep bank regulation away from BoE


LONDON: Britain plans to keep financial regulation in the hands of a beefed-up Financial Services Authority (FSA) rather than transfer powers to the Bank of England (BoE), Business Minister Peter Mandelson said yesterday.

The BoE may gain a greater financial stability role but the FSA would retain sole power over direct regulation, Mandelson said in the text of a speech provided by his office, which comes after a week of tension between the BoE and the government.

“We need to keep prudential and conduct of business expertise in one place, in a regulator capable of seeing all parts of the picture at once. That regulator has to be the FSA,” Mandelson said in the speech to be delivered to the British Bankers Association.

BoE governor Mervyn King told legislators on Wednesday that he could not be held accountable for future financial market crashes if he was not given more powers, and said the government had not consulted him on its planned regulatory changes.

On Saturday, Conservative shadow finance minister George Osborne was forced to deny that King had leaked details of an earlier bank recapitalisation plan after media reports that top ministers in the ruling Labour Party believed there was an “unholy alliance” between King and the opposition.

Labour is expected to publish fresh legislative proposals for bank regulation next week, and Mandelson will warn bankers that reform would have to continue even if the economy improved.

“I have never felt such a sense of distrust and anger between the financial sector and the rest of the economy,” he said in the speech.

Mandelson said next week’s proposals would centre on the following themes:

·More macro-prudential supervision to target systemic risk;

·New capital rules that match the economic cycle and account better for different types of risk;

·A reshaped landscape for derivatives; and

·A “fundamentally different approach to risk and failure” for banks with implicit government guarantees.

“While I think there is an argument for the Bank taking a more direct role in financial stability issues, I don’t support a twin peaks system. I believe the lesson of the last year is that we need a stronger regulator, not a weaker one,” he said.

The European Union is also considering new financial market rules, and Mandelson reiterated Britain’s view that the final say on regulatory decisions had to remain a national power even if rules were set internationally. — Reuters


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