lunedì 29 giugno 2009

UK: Economists defending Bankenstein

Party political battles threatening financial system, say economists

Economists have warned officials not to play party politics with Britain’s financial system as the feud between the Bank of England and the Government threatens to overshadow vital regulatory reform.

Mervyn King, left, is facing a battle with Gordon Brown's government over who should lead financial supervision
Mervyn King, left, is facing a battle with Gordon Brown's government over who should lead financial supervision

Two camps are emerging in the battle over who should lead financial supervision. Labour is championing the Financial Services Authority while the Conservatives are lining up behind the Bank. Unnamed Labour politicians have even suggested Mervyn King, the Bank’s Governor, is briefing the Tories, a charge that has been denied.

Danny Gabay, a former Bank official now at Fathom Consulting, said: “The Conservatives are lionising Mervyn King, which forces the Government to champion the FSA. This is serious stuff. They are playing politics with the future of the financial system. What we want is what’s best for the UK.”

Despite supporting a greater role for the Bank, he said he is disappointed that Mr King has appeared so “partisan”. Before MPs recently, the Governor attacked the Chancellor’s stewardship of the economy and gave the impression that the tri-partite regulators still fail to communicate.

“Mervyn King must tread carefully, but he’s appearing to be partisan. The FSA is handling it better by staying quieter,” Mr Gabay said.

Mr King is fighting for control of financial stability in the face of a Government that is backing the FSA. In an abridged draft financial services Bill published yesterday, a key change is “to ensure the FSA has sufficient powers to do its job [including] freestanding powers to take emergency actions for the purposes of financial stability”.

Lord Turner, FSA chairman, raised his profile yesterday after being named head of supervision and regulatory co-operation at the Financial Stability Board – responsible for identifying weaknesses in the global financial system.

The role will strengthen Lord Turner’s hand in the battle for control of “macro-prudential” regulation – the lever to fix failures of the whole system. Both the Bank and the FSA want the tools, which could include caps on mortgage lending or greater capital provisioning.


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