Duncan’s Economic Blog

Abolishing the FSA: Questions for Osborne

Posted in Uncategorized by duncanseconomicblog on July 20, 2009

So, at a time when the future of  financial regulation at the European level is being debated does promising to abolish the FSA increase or decrease it’s negotiating power?

 At a time when the FSA is looking at ways to implement the Turner Report, does threatening to abolish it increase or decrease its moral authority over the banks?

 How many FSA staff will move over to the Bank of England – one thousand or so? Where will they go? They won’t fit in Threadneedle Street, will the sign outside the FSA’s office simply be changed to ‘BOE – Canary Wharf Branch’?

 Will the Deputy Governor for Financial Stability, presumably now in charge of regulation, still sit on the MPC?

 Will interest rates be set to meet an inflation target or a financial stability target or both?



FT Alphaville worth a read.

There was one thing missing from George Osborne’s cosy Sunday morning chat with Andrew Marr on the BBC, and his subsequent View from Europe interview with George Parker, the FT’s political editor:  evidence that this man quite has what it takes to be Britain’s next Chancellor of the Exchequer.

In fact, quite the opposite. Osborne’s  headline-grabbing promise to scrap the FSA betrayed a breathtaking naivety. Does he really think we can just dismantle the infrastructure of Britain’s financial regulator — 10 years in the building — and then simply reconstruct it in some supposedly firm old hands in Threadneedle Street, and, hey presto, everything will be fixed?

This was  clap-trap policy formation at its most dangerous.


4 Responses

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  1. charliemarks said, on July 20, 2009 at 1:48 pm

    Seems like the worst thing that could happen is upheaval amongst regulators. Great news for the banksters, mind…

  2. Will M said, on July 20, 2009 at 2:06 pm

    I couldn’t agree more. This is exactly the kind of worrying cr@p I’ve been boring you about every time I moan about British politics.

  3. Jane Pir said, on July 20, 2009 at 4:59 pm

    >> that this man quite has what it takes to be Britain’s next Chancellor of the Exchequer.

    Well with the unbelievable debt we are being rest from the current lot, then this government will not be a hard act to follow.

    Seriously, the government’s tripartite system of controls just did not work. Are we not in a recession caused by a banking crisis? Do you think we should leave the tweaking to the same people who came up with the idea?

  4. Will M said, on July 20, 2009 at 6:07 pm

    Glad you asked, Jane.

    The government’s tripartite system didn’t work, its true. But in order to support the proposition you’re advancing (i.e. make hte B of E do it) you have to show that (i) it failed because it was tripartite, and (ii) having hte B of E do it will lead to a better outcome.

    Sadly, when you look at what went wrong, there’s relatively little that the FSA did wrong. They followed their mandate. The problem was that they had the wrong mandate. No-one was charged with looking at the credit-worthiness of loans being issued (well the Bank of England sort of was, but that doesn’t help you), and hence the Northern Rock bank failure.

    The only upside about Osbourne’s proposal that I can see is that banks are being so cautious and are typically regulated internationally, that the inevitable regulatory confusion that will follow from him doing this won’t directly lead to another catastrophe.

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