Lord Mandelson to stoke Bank of England row by rejecting Mervyn King's demand for more power
Lord Mandelson, the business secretary, will inflame the row between the Bank of England and the Government at a speech this evening by rejecting Mervyn King's demands for greater regulatory powers.
In comments that will stoke the Government's feud with the Bank's Governor, Lord Mandelson will say: "I don't support a 'twin peaks' system. The lesson of the last year is that we need a stronger regulator, not a weaker one.
"We need business expertise in one place, in a regulator capable of seeing all parts of the picture at once. That regulator has to be the FSA [Financial Services Authority]." Mr King has called for more power at the central bank, expressing dismay that it "can do no more than issue sermons or organise burials" when the financial system is on the brink.
However, his requests have fallen on deaf ears at the Treasury, which will not outline a greater regulatory role for the Bank when it publishes its green paper on financial reform next week. The Chancellor's position will pit him against Mr King and George Osborne, the shadow chancellor, who has said the tri-partite system "needs to be reformed". The Tories plan to overhaul regulation to give the Bank overarching responsibility for financial stability.
In a speech to the British Bankers' Association (BBA), Lord Mandelson will also say that the FSA and European Union "are both going to get a new rulebook" that will create new capital and liquidity requirements, better accounting for risk, and "reshape the landscape for derivatives".
He will warn financial institutions that rely on Government guarantees, be they implicit or explicit, that they must "clearly be expected to take a fundamentally different approach to risk and failure".
In a salvo aimed at the industry's attempts to fend off the regulators, he will argue that while the BBA is right to warn that over-stringent rules could hurt the economy by limiting the flow of credit, the industry is not providing enough data to help regulators and the Government "in getting these judgements right". "This is an omission that needs fixing."
He will add: "In a decade or more of exposure to businesses on a day-to-day basis, I have never felt such a sense of distrust and anger between the financial sector and the rest of the economy. People are furious about risk taking and astronomical pay. People are asking how financial services appeared to move so easily from being an asset to a liability for the economy."
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