F&I Management & Training

Shadow Chancellor George Osborne has outlined his plans for the future of Britain’s banks – and there’ll be no place for the FSA, at least not in its current form. The Tories want to overhaul the tripartite system – which, let’s face it, hasn’t covered itself in glory in the last 18 months – and put the Bank of England in charge of supervising the banking industry. Osborne also plans to ask the Office of Fair Trading and the Competition Commission to run a beady eye over Lloyds and RBS, possibly with a view to breaking them up. So there are going to be a lot of people considering their options between now and next year’s General Election…

If the Tories win said election, as the opinion polls suggest they will, the FSA will be the biggest casualty. Osborne reckons its failure to keep the banks in check during the boom years has proved it is unfit for purpose. So he intends to transfer its supervisory powers to the Bank of England: a new Financial Regulation division would be created at Threadneedle Street, headed by a new deputy governor and staffed with external members (like the Monetary Policy Committee) to police lenders. Meanwhile what’s left of the (considerably stripped-down) FSA will be re-branded as the Consumer Protection Agency, with responsibility for overseeing retail financial products.

Meanwhile Osborne also plans to get the OFT and co onto the UK’s state-owned banks – and if they decide their scale is bad for consumers, he might force a partial break-up, or sell the Treasury’s shares to new entrants. But he seems to have stepped back from his earlier threat to force the banks to spin off their investment banking divisions – possibly because it went down like a lead balloon in the City, and now’s a bad time for him to be alienating corporate support. But he does make the (not unreasonable) point that there’s no point doing this unless other countries do it too, or it will just hammer the City and drive banks overseas – so the Tories will press for a global consensus, but won’t act unilaterally (though banks with riskier balance sheets will probably have to hold extra capital).

As you can see, this puts the Tories on a collision course with some important people. Bank governor Mervyn King has said he doesn’t want this new beefed-up role (though that may have been a sop to the Chancellor). RBS and Lloyds will be instructing their lawyers to prove that they’re not really nasty competition-stifling behemoths, while their other big institutional shareholders will be fretting about forced sales. And then there’s the FSA, which has to spend the next year with the sword of Damocles hanging over its head – if the City thinks it’s unlikely to survive past the next election, who's going to listen to it in the meantime?

DATED: 20.07.09

FEED: MGT