Speaking to business leaders at the CBI North East annual dinner, CBI director-general Richard Lambert said the tripartite system had “been found wanting under fire”.
Lambert said: “A run on the bank was what you would expect in a banana republic. That one should have happened in a mature and prosperous country like the UK is almost unimaginable.
“Other financial institutions around the world have been buffeted around in this rough weather. Few of them have been holed.”
Lambert suggested that there are too many conflicts inherent in a system where three different institutions, with three different policy priorities, have to come together to tackle a fast-moving crisis.
He says: “It’s not enough to say, as the Governor did last week, that the main difficulties in fixing the problem had been created by the complexity of today’s company law, and by our system of deposit guarantees. You don’t wait for the cinema to catch fire before you check out whether the fire precautions are going to work.
“Now the government has two ways of restoring normality to the UK’s banking system. Either it can underwrite bank savings, which would generate heavy-handed regulation, kill competition and punish innovation, or return to a world where market forces operate.”
The FSA was the only body to respond to the comments in a statement released today.
It says: “The Tripartite believes that there are advantages in the clarity of responsibility that lies between the Bank as a bank, the FSA as a regulator and the position of the Treasury, those are responsibilities that are very clearly defined in a Memorandum of Understanding.
“The Tripartite authorities have been working closely together throughout this situation and continue to do so. We each have different responsibilities which we are each properly discharging.
“Clearly, following the events of the last few days the authorities will be looking at what measures can be taken to build confidence and see what lessons can be learnt.”