The committee of MPs has today released its final report following its evidence sessions during the year on the banking crisis, and has concluded that the recent changes heralded by the Government and the tripartite have done little to fix the inherent problems in the financial regulatory system.
The report has attacked the new institutional structure of the Tripartite Committee announced in the Treasury’s recent White Paper to be “largely cosmetic” and says merely re-branding the Tripartite Standing Committee will do little to improve the situation.
The report also says that too many bodies have formal responsibility for financial stability now. It says: “Where responsibility lies for strategic decisions and executive action was, and remains, a muddle.”
It also says that the banking crisis should be fixed before anyone considers making changes to the tripartite system.
Chairman of the Treasury select committee John McFall says: “The tripartite structure of regulation is in a state of flux at the moment. Institutional reforms should wait until the macroprudential tools themselves have been designed. When the dust settles though, we cannot afford to have any ambiguity over who is in charge, and who is responsible if something goes wrong.”
McFall also says the “fashionable” philosophy changes of the FSA will do nothing unless it becomes stricter on the UK banking sector. He says: “By any measure the FSA has failed spectacularly in its supervision of the banking sector, but it has acknowledged this and already begun to rectify its mistakes. The FSA must develop sufficient teeth in order to be able to go against the tide in the future and take unpopular decisions.”
The report also calls on the Government to make sure that there are no longer banks that are “too big to save”. It says in order to do this the banks should not be broken up, but rather have stringent capital requirements put on them so as to dampen any further growth. It also rejects any calls to separate ‘narrow’ and ‘investment’ banks along Glass-Steagall legislation as “intolerable”.
Liberal Democrat Shadow Chancellor Vince Cable says: “This report rightly underlines the need for high quality and transparent regulation if we are to create a stable financial system.”
Cable also says the report exposes the “sheer folly” of the Conservatives’ proposal to hand all power back to the Bank of England.