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Howard Flight: New banking regulation an ‘act of faith’

Howard Flight Conservatives

Conservative peer Lord Flight says it is an “act of faith” to believe the Bank of England will rise to the challenge of financial regulation given its “disastrous” track record.

The Financial Services Bill, currently in the House of Lords will split up the FSA and giving Threadneedle Street responsibility for prudential regulation and financial stability.

In a briefing note supporting amendments to the bill proposed by Lord Flight, he says: “The big act of faith is that the new PRA, the FPC and the Bank of England as a whole, will rise to the challenge of successful and effective supervision of our banking system. The Bank’s recent record was a disaster.

“It did nothing to constrain excessive monetary growth over nearly a decade; it failed to spot the impending banking crisis and banking run in the summer of 2007; and initially refused to recognise what was happening in 2007/08 because its economic model said all was well.”

The Bank has come in for heavy criticism from the Treasury select committee over its response to the crisis, its accountability and the amount of power it is set to get under the new regulatory architecture.

Flight adds that with life companies being regulated by the Prudential Regulation Authority, which will be based in the Bank, as well as the new markets regulator, the Financial Conduct Authority, it is important the board of the PRA has someone with insurance experience.

Currently there are no measures in the bill to ensure the insurance industry is represented, though Flight says the Government has committed to addressing this.

Flight also wants the FCA to have regard to the international competitiveness of the UK’s financial services industry and for the Prudential Regulation Authority to have an objective to deliver a competitive market for banking services.


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. The problem any regulation including the regulation of banks is one of vested interests. The government wants banks to lend money to get the economy going but a regulator requires a banking organisation to act in a sensible and prudent manner when it comes to lending.

    The problem is that those two messages are at odds with each other and if the regulator forced the banks to act more sensibly and prudent and politicians and the general public would get upset as being too cautious and not lending enough money as we are seeing today.

    If we want our banks to act like proper banks use to before the 1980s we are going to have to get used to a more prudent lending criteria which will eventually lead through to lower house prices or stagnant house prices.

    What government needs to do is to provide guarantees to business lending which they are only now starting to do as this is the real lifeblood of the British economy and not the stupid hyping of house prices over the last 30 years that benefited both political and greedy bankers.

  2. Julian Stevens 23rd July 2012 at 1:56 pm

    Faith, by definition, is belief without evidence, in this case faith in a new regulatory structure doing a better job than what has gone before it.

    Add to that a regulatory structure under which nobody is ever held to account for failed regulatory policies or for dereliction of duty ~ perversely, the present system actually REWARDS such things ~ and it’s hard to have any confidence that the regulatory lansdscape is likely to be any better going forward from here. The guilty parties are quietly put out to pasture with a trunk full of money that’s more than many people earn in a lifetime.

    Power without accountability as to how that power is exercised is extremely dangerous. We’ve seen it a thousand times down through the centuries of history and, in more recent times, what we’ve seen also is that regulators themselves need to be regulated ~ if need be, by hindsight.

    On the one hand, Adair Turner pays lip service to the idea of the regulator being more accountable (what else could he be seen to say?) whilst, on the other hand, calling relentlessly for ever more powers (and money and resources), despite the fact that the FSA has shown itself on countless occasions to be incapable or wielding resonsibly or competently the powers (and money and resources) that it already has.

    It’s all just hot air and shuffling around the deckchairs on the Titanic whilst people such as Margaret Cole and Hector Sants enjoy 6 months of lavishly paid gardening leave at everybody else’ expense whilst they line themselves up for their next super-lucrative role.

    Not that I’m cynical or anything, you understand.

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