Bank of England Should Regain Oversight Powers, Lawmakers Say
Rules created by U.K. Prime Minister Gordon Brown in 1997 to police the financial system have failed and contributed to the most recent crisis, lawmakers said.
Responsibility for raising the alarm on potential crises should return to the Bank of England, the House of Lords Economic Affairs Committee said in a report today. Currently, there is an “inadequate definition of roles” between the central bank, the Treasury and the financial regulator, it said.
“The tripartite regime in the U.K. was unable to fulfill principal purposes, namely financial stability,” Lord Ian Vallance, chairman of the committee that scrutinizes Treasury policy in the upper chamber of Parliament, told reporters in London.
The report adds to criticism of Brown’s decision as finance minister to strip the Bank of England of its supervisory role and hand it to a newly created regulator. That body, the Financial Services Authority, showed a “lack of rigor” during the crisis that started in 2007, Lord Vallance said. The opposition Conservative Party has proposed restoring oversight powers to the central bank.
The Treasury said Chancellor of the Exchequer Alistair Darling is studying proposals to overhaul supervision and will put out his recommendations by the time Parliament begins its summer recess on July 21. The government has already handed some power to the central bank with a new Banking Act introduced earlier this year cash advance no credit check.
The Lords’ proposals would leave central bankers to decide whether to use public money to bail out a troubled institution. They leave open the role for elected politicians at the Treasury during a crisis.
‘Unambiguous Control’
The report says the central bank’s Financial Stability Committee, chaired by Governor Mervyn King, should lead the way in monitoring the health of the banking sector as a whole. It said top officials from the Treasury and FSA should sit on the panel.
The committee “should now be given quite unambiguous control of macro prudential supervision to complement the bank’s recently enhanced role for financial stability,” Vallance said.
Lords called for an increase in capital requirements for banks, central reporting and clearing for credit default swaps and greater oversight of the U.K. offices of foreign banks.
On May 15, a report from the House of Commons Treasury Committee said feeble oversight by regulators allowed executives at Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc to bring the banking system close to collapse in October.
Filed under: business by Finance Boss