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.