FSA

Claire Jones

Andrew Tyrie, the chairman of the Treasury Committee, is concerned that banks are at risk of a severe liquidity drought, and wants “reassurance” from the Bank of England and the Financial Services Authority that they are “examining carefully” what they can do to ensure we don’t get a repeat of the 2008 panic.

His fears of a liquidity shortage are warranted. But he is wrong to target the Bank and the FSA in his letters to Hector Sants, the FSA’s chief executive, and the governor.  

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. 

“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].”

Chris Giles

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

 

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”. 

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. 

Simone Baribeau

If Lord Adair Turner has received heat for his sometimes controversial comments, today he could take comfort in an “atta-boy.”

The chairman of the Financial Services authority, much maligned for his comments on “socially-useless” bank trading practices last year, received nothing but praise from Paul Volcker, former Federal Reserve chairman.

The architect of the so-called ‘Volcker rule’ called Lord Turner “extremely sophisticated” and “thoughtful” and urged participants at a Peterson Institute for International Economic to read his “very closely reasoned” speech on financial reform. He praised the analysis, which was highly skeptical of the benefits of financial services.

He later referred a question on potential downside to the Volcker rule – which would ban proprietary trading at commercial banks – to Lord Turner’s analysis. “He says some liquidity’s good, but at some point let’s stop its growth.” Mr Volcker then concluded that there would be no negative impacts from the ban.

Other highlights from Mr Volcker’s talk: 

Hector Sants resigned on Monday night as head of the Financial Services Authority, the City watchdog, in a dramatic move that throws the direction of financial regulation into question.

Mr Sants had been a vocal advocate of banking reform both in the UK and internationally in the wake of the financial crisis. He had also been outspoken in his criticism of the plans of a potential incoming Conservative government to disband the FSA. 

Swedish finance minister prepares Swedish banks for Latvian collapse. Gold may be heading to $1,500 a troy ounce, with many investors confused why; and has the G20 already broken its pledge to transparency and a rebalancing of power? 

Chris Giles

Alistair Darling is getting into election campaign mode and clearly thinks Adair Turner of the FSA is talking nonsense. All this and more in an interview with the Financial Times, writes Chris Giles