Osborne: Our way would have eased debt crisis
Chancellor George Osborne insisted today his new banking regulation regime would have left Britain less exposed to the financial crisis that has plunged the nation into debt.
He said he wanted the new system to be “alert” to the question of “excessive” pay and bonuses for bankers, which critics say led them to take too many risks.
He was adamant the transition to the new system — not fully in place until 2012 — would be managed smoothly.
Last night Mr Osborne announced the abolition of the Financial Services Authority (FSA) in a shake-up of City regulation which he said would produce “a new settlement between our banks and the rest of our society — a fairer settlement in which the banks support the people, instead of the people bailing out the banks”.
Regulatory powers will be returned to the Bank of England with the creation of three new bodies within the Bank to deliver prudential regulation of financial firms, financial stability, and consumer protection.
The independent FSA will cease to exist in its current form in 2012, Mr Osborne confirmed in his Mansion House speech in the City.
A new Prudential Authority, operating as a subsidiary of the Bank of England, will regulate retail and investment banks, building societies and insurance firms.
FSA chief executive Hector Sants will stay on to see the body through to the end of its life before becoming the first chief executive of the new regulator, with the Bank's Andrew Bailey as his deputy.
An independent Financial Policy Committee within the Bank, chaired by the governor and including external members, will watch out for threats to economic and financial stability.
‘Someone would have said take away punch bowl’
And a Consumer Protection and Markets Authority will regulate the conduct of all authorised financial firms providing services to consumers.
Mr Osborne also confirmed the Government's intention to introduce a banking levy and demand further restraint on pay and bonuses from the financial sector.
The Chancellor was asked today if it was his view that his regime would have left Britain less exposed to the last banking crisis.
“Yes, it is,” he told BBC Radio 4's Today programme.
“There would have been someone in the system looking at the overall levels of debt that were rising very rapidly in the middle part of the last decade.”
Borrowing a phrase from Bank governor Mervyn King, Mr Osborne added: “Someone would have said to take away the punch bowl as the party was getting going.
“Keeping an eye on the wood as well as the trees is very important and that was not happening in the build-up to this crisis.”
On pay and bonuses, the Chancellor said: “I think the culture has to change in our financial services. I think the levels of pay are excessive and totally out of kilter with pay in other sectors of our economy.