Squabbles Over Financial Regulation In London
Wednesday 24 June 2009 at 11:28 The squabbles over financial regulation continue with four competing players: Treasury (Government), Financial Services Authority; Bank of England; and the financial services industry itself, backed by its own lobby organizations and the City of London.
The ‘aggressor’ in this case is the Bank of England which wants tougher financial regulation whereas the Treasury and the City worry that a regulatory turn of mind, in an excess of risk avoidance, might kill the goose that lays the tax and profits egg.
The Bank of England’s concern is probably more noble. It genuinely fears that, having escaped from economic meltdown by the skin of our teeth, we have no second chances and that a future crisis could break the back of the British economy.
A second crisis (though never said) may place the future of traditional British liberal capitalism in doubt. The FSA, meanwhile, is probably least noble in its concerns – protecting its turf from attempts by the Bank of England to take over many of its key functions and so displace the primary City regulator.
The FSA has, however, seen the writing on the wall, especially as the Bank has some US precedent behind it. An incoming Tory Government might very well adopt a similar tough line, if only because something decisive may need to be done by the incoming Chancellor for political reasons.
The FSA model is not to hand over powers to the Bank of England but for improved collaboration with the Bank through a financial stability committee. It is seeking co-dominion over City regulation. Much of this is bureaucratic self-protection and need not detain us for long.
More importantly, all this is another sign of the weakness of the New Labour Government in allowing these non-Governmental bodies to fight a turf war in public without settling the matter through edict.
The financial services sector is remaining cautiously and relatively silent except on the attempted coup against the City of London through a new EU Directive where it fears that a weak Government really will take its eye off the ball and allow a French knife to slice the goose's throat.
Bank and FSA are united in seeing bad behavior returning to the banking sector. They are now expressing, often indirectly, concerns at the effects of political weakness on policymaking as the immediate threat recedes.
Centrist governments and finance capital are already drifting back towards their old strategies of collusion.
The technocrats charged with the economy are getting worried that laziness and fear will mean no reform – and that no reform may mean that we will have to go through the whole crisis again at some later stage with much worse effects on the economy and perhaps the polity.
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