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BoE must recognise the size of its task

Brian Tora
Brian Tora

With BP bowing to US pressure to suspend its dividend payment for the rest of the year and George Osborne delivering on a manifesto promise to ditch the FSA, last week had plenty to prompt advisers and fund managers to take a step back and ponder.

And as if these primarily domestic concerns were not enough, rumours that Spain was about to seek a bailout package abounded. Quiet it was not.

Yet shares trended higher. Investors seem able to ignore the uncertainties that persist.

Perhaps the worries really are overdone and will fade into the background. I am not quite so sanguine but accept that recessions do provide an opportunity for companies to tighten their working practices while the first weeksof a new administration provide an unparalleled opportunity for ministers to take unpalatable but necessary decisions.

As for the shake-up to our regulatory system, this clearly provides an opportunity as well, but one that will only be recognised as successful or otherwise with the benefit of hindsight.

Needless to say, the broadcast media made much of the proposed new structure, even if the uxtaposition of the BP dividend cut and appearance of Tony Hayward at a Senate select committee provided alternative fodder.

The day after the Chancel – lor’s Mansion House speech, I found myself alongside British Bankers’ Association chief executive Angela Knight in more than one BBC studio. It is remarkable what you learn in the confines of the green room. Former Bank of England governor Eddie George’s rapture at receiving inde – pendence for our central bank was later tempered consid – erably by the news that the FSA was to take responsibility for all financial institutions, including banks.

Now the Bank of England is to take over all the regulatory roles, including a new function, described as macroprudential. Tempted as I am to view the phrase as the encapsulation of Tidjane Thiam’s ambitions in the Far East, it is a phrase I suspect will, like sub-prime, fall into common usage. Put simply, it is the task of keeping an overview of what is going on in financial markets and, to paraphrase Mervyn King, turn the music down when the dancing gets too wild.

We know the Fed has desc -ribed its role as taking away the punchbowl before the party gets out of hand and, in essence, this is what is plan – ned. How will it work? We have yet to find out the detail but let’s look at a couple of what-if scenarios of what might lay in store for businesses in domestic financial services.

Indiscriminate lending has been blamed for some of the troubles in our housing market. So say lending criteria is relaxed and house prices start to surge again, the firsttime buyer seeking an 85 per cent loan to value on the desired home at the foot of the ladder could suddenly find, at the instruction of the macroprudential regulator, an extra 10 per cent deposit is needed.

Or the private equity buyer of a sensible business might find the funds needed to finance the purchase are denied, thanks to a word in the ear of the banks.

Perhaps this is what is needed – only time will tell. My concern remains, though, that the regulator must recognise our industry is made up of all shapes and sizes of business, from the one-man band to the fullservice bank.

In the end, regulation is paid for by the customer and costs are a tax on investment performance.

The important role the customer-focused adviser and portfolio manager plays needs to be fully recognised.

Brian Tora ( is principal of the Tora Partnership


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