Tougher Regulation For Banks – More Protection For Consumers
“We need a change of culture in the banks and their boardrooms, with pay practices that are focused on long-term stability, and not on short-term profit.”
These were the words of Alistair Darling today when he outlined his White paper on banking. The proposed measures are aimed at preventing a repeat of the banking crisis which led Britain into its worst ever post-war recession.
The Chancellor said that the Financial Services Authority (FSA) would have more powers to combat and deal with risk-taking in banks, being able to penalize misconduct. It was risky short-term behaviour and irresponsible pay practices that was partly to blame for the collapse of Northern Rock and the current financial crisis. Although he said an annual report would be required from the FSA on whether banks are living up to the new codes, he stopped short of actually capping bankers’ pay.
Key amongst areas where legislation was proposed were:
Greater consumer protection – A levy would be raised against the banks to pay for a national money advice line and to provide a strengthened fund that would pay out to savers should an institution collapse- The Financial Services Compensation Scheme. All banks will also have to draw up an outline on how they would safely wind up their business should it fail suddenly. They would also have to hold more capital to cover future losses and lending would have to be curbed thanks to a ‘back stop’ rule.
A new council for financial stability – Consisting of the FSA, Treasury and the Bank of England which would be expected to deal with any future crisis or meltdown. This was met with ridicule however by shadow Chancellor George Osborne who insisted that the current tripartite system should have done, and they did not have clear enough lines of responsibility for financial stability. The conservatives would hand the bulk of the power back to the Bank of England and create a separate consumer and markets regulator- the end of the FSA.
Greater competition – Darling noted the reduction in the amount of institutions providing financial services and would look to encourage ‘non-banking’ institutions into the market. He also expressed the desirability of mutuals and building societies playing a bigger role in future.
Consumer organizations welcomed the news that the consumer will be more protected in future: “We’re pleased that the government recognises the need to provide a better deal for consumers,” said Which? chief executive Peter Vicary-Smith.
“Warnings about risky products, universally available money guidance and more choice on the High Street will all help to empower consumers in their dealings with the financial world.”
The opposition don’t think that enough has been done to prevent a repeat of the current economic crisis. As well as handing power back to the Bank of England, the conservatives would break up banks which had taxpayer stakes. Darling rejected this, saying it was a ‘simplistic’ solution. Instead, the part-nationalised banks will be returned to the public sector with any proceeds from the sale of taxpayers’ stakes going towards reducing government debt.
