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Beefing up Financial Regulation. (June 20th 2008)
During his speech to the Lord Mayor’s annual
banquet on the evening of 19th June 2008, the Chancellor Alistair
Darling outlined his plans for a beefed up financial regulation
regime. We can be fairly sure that the root cause for such deemed
strengthening of regulation was the demise of Northern Rock and its
subsequent nationalisation. An act that has reportedly already
resulted in some £5bn being taken out of the mortgage market and
paid back to the Treasury. To help Peter we must hurt Paul it seems.
The Bank of England has had a nominal role in ensuring financial
stability. This will now be enshrined in law.
The Bank of England has a so-called Court. This body will oversee
the stability role. In doing so, its members will be cut from 18 to
12. The new chairman of the Financial Services Authority (Lord
Turner) will have a seat as will the Governor of the Bank of England
and his two deputies.
A new Financial Stability Committee will be a sub-committee of the
Court. It will contain hand-picked members of the Court and be
chaired by the Governor of the Bank of England. Both the FSA and the
Treasury can attend its meetings.
There will be a new system under which the authorities will
intervene in the management of a struggling bank. It will be called
"Special Resolution Regime".
The Red Book which sets out how the Bank interacts with the money
markets, will be re-written and updated.
The new Special Liquidity Scheme which provides banks with liquid
securities in exchange for their illiquid bonds and instruments will
be made more or less permanent.
The Bank of England will be able to request firm-specific
information from the FSA if it is worried about the welfare of a
specific bank
The Bank of England will be able to propose changes to the FSA’s
regulation framework. |
