UK Chancellor Darling called the “De Larosiere” proposals as merely “a good starting point for debate” and will his own proposals shortly. We have to ensure strong, effective regulators at a national level, he said.
As Prime Minister Brown travels to the EU Summit to agree the detailed legislative plans to implement the “De Larosiere” proposals, his Chancellor (at the Mansion House last night) labelled them merely “a good starting point for debate” and committed to producing his own proposals shortly. At the same event, the Governor of the Bank of England, complained that he has insufficient powers to maintain financial stability. Many City observers argue fiercely that the EU is going too far and too fast. But they seem to ignore entirely the certainty that domestic political forces are intent on great regulatory change. The only remaining question is whether it will be solely national, EU level or G20 level. In practice, the impact of the EU on the G20 process means that there is likely to be little difference in principle between the EU and G20. The issue will lie in the mechanics of implementation.
The brief extracts below from the two speeches give a flavour of the forthcoming debates:
Chancellor Darling:
“Recent events present us with an opportunity to build a stronger, more efficient and resilient financial sector. If we are going to do that, we cannot go back to business as usual. If here is anyone in this room, or in the industry, who thinks that they can carry on as if nothing has happened, they need to think again. ....Bank boards must have the right people and the right skills and experience to manage themselves more effectively. And they need to be equipped to ask the right questions. Their focus must be long-term wealth creation, not short-term profits. ....
Indeed, the second lesson is that solutions must not only be national, but international. The reality is that the fortunes of different countries are more interdependent than ever before and the links across borders – particularly in financial markets – are much deeper. Regulators cannot only look at their own backyard and hope to understand what’s happening. At the European and international level, the UK has been at the forefront of proposals to increase regulatory cooperation, common rules and enhanced monitoring of global financial risks. The
G20 has agreed to establish a new global Financial Stability Board, with a wider group of developed and emerging countries. And it will work with the
IMF to spot risks and provide early warning of financial imbalances.
At the European level, the de Larosiere proposals represent a good starting point for debate. [Editor's emphasis] But we have to ensure strong, effective regulators at a national level – and retain the vital link between home regulators and national governments. ...
As we’ve seen in the United States and the European Union this week, many countries are engaged in a debate, about the interaction between financial supervision and macroeconomic policy. Already people are advocating new institutions and new tools to implement a new approach. Institutions are important. So are the tools for them to do the job. But to concentrate only on institutions, seems to me, to miss the point. At its heart, this is about judgments that are based on an a clear understanding of what’s happening. ...
But for this to work effectively, it has to be agreed and implemented internationally. There is a debate going on at home and abroad. I will publish my own proposals shortly, to help lay the foundations of a new financial regime. [Editor's emphasis] But it is clear that the solutions must be based on better corporate governance, greater transparency, internationally agreed frameworks, better systems for dealing with bank failure, and greater focus on system-wide risks.”
Full speech
BoE Governor King:
“As far as individual banks are concerned, we face some uncomfortable choices about the structure and regulation of our banking sector. If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure. Something must give. Either those guarantees to retail depositors should be limited to banks that make a narrower range of investments, or banks which pose greater risks to taxpayers and the economy in the event of failure should face higher capital requirements, or we must develop resolution powers such that large and complex financial institutions can be wound down in an orderly manner. Or, perhaps, an element of all three. Privately owned and managed institutions that are too big to fail sit oddly with a market economy.....
The Bank finds itself in a position rather like that of a church whose congregation attends weddings and burials but ignores the sermons in between....
There is no support in this country, and no case, for excessively bureaucratic regulation. But change to the structure, regulation and indeed culture of our banking system is necessary.”
© Bank of England
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