Restructuring the FSA will improve regulatory supervision without harming the competitive position of the UK, according to a majority of UK finance professionals surveyed by international law firm Norton Rose.
Of the 156 UK respondents, 69 per cent disagreed or strongly disagreed that restructuring Britain’s regulator would harm the competitive position of the UK as a financial sector, while 54 per cent agreed or strongly agreed that the proposals would improve regulatory supervision. Read more
A tiny bit of progress on macro-prudential regulation
For those interested in deckchairs, there is a lot of reshuffling of them going on in British financial regulation, outlined in a Treasury consultation document today. A short summary is: the Bank of England will have much more power to do essentially the same things that the tripartite authorities planned under the previous government.
The existing tripartite Council for Financial Stability and the Bank’s Financial Stability Committee will effectively be merged in function and rebadged as the Financial Policy Committee of the Bank. Like the existing councils, the new FPC will have representatives from prudential regulators and from Treasury. It will also have some outside representation on the 11-strong Committee which will meet four times a year other than at times of crisis.
On the substance of the FPC’s remit, there is a lot of stuff in the Treasury consultation about the way the FPC will operate its tools and a bit of fretting about interaction with monetary policy, but there is still rather little on the macro-prudential tools the FPC will be given. Obviously, this is the important bit and the paucity of information here is disappointing, since it does not go much further than the Bank of England’s discussion document on the role of macro-prudential policy from last November.
But the tools the government is thinking of giving the FPC are the following: Read more
“It is odd that the new regulatory structure makes an unrepentant BOE even more powerful with respect to regulatory matters,” writes former MPC member Sushil Wadhwani in The Future of Finance, a collection of essays. “In my time at the MPC at the Bank, I was surprised by the lack of interest in issues relating to financial markets. Indeed there seemed to be a deliberate policy to run down resource in the Financial Stability wing.”
Strong words. But the argument against giving regulatory powers to the Bank of England is not, however, that they don’t deserve them. Rather, Dr Wadhwani argues that monetary policy and macro-prudential policy need to be able to work against each other, or, as he puts it, “the use of monetary policy to ‘lean against the wind’ is critically important in its own right and to the success of the ‘macroprudential’ policy to be adopted by the [Financial Policy Committee].” Read more
Stress testing could become an institution in itself. Adair Turner has told reporters he expects authorities to move toward annual stress tests, which would be made public, and behind them tests of specific institutions running on a rolling basis. The head of the FSA also repeated his assertion that British banks would fare well under European stress tests, and that those tests would be sufficiently stringent. His reasoning, though, will not comfort markets.
First, Lord Turner describes the European tests as “adequate” rather than, say, “stringent”. And second, his confidence in British banks is founded upon private scenarios run by the FSA last year, which he describes as “more extreme” than those planned by Cebs, Reuters reports. Read more
King of the castle
George Osborne and Mervyn King’s Mansion House speeches have just been published. Their content makes it clear that the Bank of England will be all-powerful in UK financial regulation and Mr King will sit on top of the new castle. He was already so powerful he felt able to make jokes about the chancellor’s youth, something I gather is generally not popular in Number 11.
(Boring aside. Mr Osborne is 39, 23 years younger than Mr King, a subject on which the governor chose to dwell at some length in a way that, to put it politely, bordered on patronising.)
Earlier today I wrote a list of things we did not know. Here are the answers in red:
Mervyn King is a confident man
Let no one accuse the Bank governor of complacency. He insisted otherwise in his Mansion House speech just published. But he is on pretty confident form.
The governor insisted the weakness of the economy would create “spare capacity [that] will press down on inflation” which is currently running at 3.4 per cent.
But that is not all. So evidently effective has monetary policy proved Read more
Mansion House speeches
George Osborne’s mansion house speech tonight is generating lots of interest because it is billed as the moment he reveals his blueprint for financial regulation in Britain. Most of the speculation in the media this morning is of the “let’s print Conservative Party policy and pretend it is a scoop” variety. I have not seen the speech by the chancellor, nor the reply from Mervyn King, Bank of England governor, so here is a quick guide to what we know and don’t know.
What we know for certain
Thoroughly recommended, from Howard Davies & David Green:
There are areas in the coalition agreement where mating a pure-bred Tory policy with a pedigree Liberal Democrat manifesto commitment has produced a mongrel, but in the area of financial regulation the opposite is the case… The formal statement says the government will “give the Bank of England control of macroprudential regulation and oversight of microprudential regulation”. We may presume from this that day-to-day institutional supervision will remain with the FSA. That makes sense. Read more
City analysts will be relieved by the UK government’s reprieve for the FSA, the UK’s financial services regulator. “There will be cheers in the City if, as now seems likely, the FSA remains the single regulator for banks and insurers,” Paul Edmondson, a London-based regulatory lawyer, told Bloomberg.
The Conservative Party had pledged to scrap the body, shifting its responsibilities to the Bank of England. This now looks unlikely but FSA responsibilities will still change. According to Bloomberg, the FSA will “undertake day-to-day supervision of individual lenders, and report directly to the central bank”. Read more
George Osborne, the new Tory chancellor, has been forced to water down plans to hand over banking supervision to the Bank of England under a five-year coalition deal struck with the Liberal Democrats.
Tory officials admitted that the Financial Services Authority could survive the planned shake-up of banking regulation, a move that will delight many in the City who feared that Mr Osborne’s original plan would lead to serious upheaval. Read more
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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS
