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Northern Rock, the mismanaged bank, collapsed in 2007. Early in 2008 the global banking sector started to creak on its foundations before reaching near implosion in September 2008. Enough time has passed, you would think, for the UK regulatory bodies to have replaced the risk management by “box-ticking” process with something more robust. Wrong.
100 weeks have passed since it was blindingly obvious that a total over-haul of financial regulation was required and the latest government sponsored report, from the Treasury Select Committee, has described the current supervisory framework as a “muddle”. The committee also suggested that the measures to date were “merely re-branding” and that there remains a void of ownership in “strategic decisions and executive action”. They are not referring to the old system. They are describing the current structure.
Britain wasn’t always a 2nd class nation in terms of financial and economic leadership. 80 years ago we were lucky enough to have possibly the most gifted economist that ever lived, John Maynard Keynes, to advise the government on economic and financial matters.
Since the near collapse of the UK banking sector an increasingly bitter political game is emerging. On one side is Labour, a tired and unpopular ruling party that has governed (in the loosest sense of the term) through the worst global recession since the Great Depression. Labour in reactive splendour is trying to fix the painfully flawed banking sector regulatory framework. It has decided the Financial Services Authority should be the tool fit for purpose.
Opposing Labour, is the Conservative party, out of power since 1997. The Tories smell blood, Labour’s blood, and are maneuvering ever closer to 10 Downing Street. Only an enormous and near-unprecedented change of public mood will prevent them from regaining power. The Conservatives have nominated the Bank of England as their representatives to secure deeper banking sector regulatory control.
With an election due in 2010, there is a race on. Can Labour force through the requisite legislation to strengthen the hand of the FSA before the election? Or can the opposing box-tickers at Conservative headquarters devise a sufficiently cunning plan to stall Labour’s efforts so they can appoint the BoE after their inevitable election victory.
Missing from this political game of regulatory chess is a cross-party consensus that puts aside political differences, and focuses on a single solution, that is best for the banking sector, the country and the economy.
This past week the chairman of the UK Financial Services Authority, Lord Adair Turner, has suggested the retirement age for both men and women should be increased further, from his previous recommendation of 68, to 70. The FSA is an independent body responsible for regulating the financial services industry in the UK. The “68” recommendation formed part of a 2005 pension reform paper Turner submitted prior to being appointed FSA chairman. Hopefully the more stringent and inevitably unpopular suggestion is a function of increasing longevity. Otherwise observers may conclude the proposal is a response to the UK’s growing fiscal crisis. There is widespread acceptance that the UK government needs to increase tax revenues, with deferring payments to pensioners an option, following the near collapse of the banking sector partly due to regulatory failures, which thereafter prompted a collapse in asset prices and a recession.
