The biggest single criticism of David Cameron's Conservative Party has always been the accusation that it has published little in the way of detailed policy, concentrating instead on bland statements calculated not to offend. Well, if you have nothing else that is positive to say about the regulatory reforms unveiled by George Osborne yesterday, you can't fault the Shadow Chancellor's determination to offer substance – or his willingness to be bold.
I use the word bold not so much with the headline-catching abolition of the Financial Services Authority in mind (in fact, the organisation will survive – albeit with a new name and fewer powers). Nor is Mr Osborne's plan to move responsibility for "microprudential" regulation – essentially monitoring individual banks' liquidity and solvency levels – from the FSA to the Bank of England especially striking. That idea has pros and cons, but is a relatively easy policy hit, given the FSA's failings during the credit crisis.
No, what's really remarkable is the relaxed way in which the Tories are talking about breaking up Britain's biggest banks. While Mr Osborne does not propose Glass-Steagall-style legislation to prevent institutions engaging in both retail and investment banking, his intensive capital requirements on the latter could have exactly the same effect.
That's before you get to banking competition, where the Conservatives say the results of a review will inform their decisions about how to dispose with the taxpayer's stakes in our largest banks. If Barclays suffers under new capital requirements on its Barclays Capital division, expect Lloyds Banking Group, now it has subsumed HBOS, to face similar problems on the competition test.
As for substance, the Tories have gone miles further than the Government in explaining the sort of tools regulators will get in order to fulfil both micro and macroprudential objectives with, for example, proposals for caps on leverage, counter-cyclical capital requirements and limits on interbank lending.
As I say, no one can accuse Mr Osborne of failing to spell out the full detail of how he would reform financial regulation. Still, that is not to say all that detail is right. This obsession with who wields the toolkit, for example, is a little tiresome. The truth is that there were cock-ups on the Bank of England's pre-1997 watch, just as there have been under the FSA. And separating out the different types of supervision in which the FSA is engaged, often through the same teams of people, will be tricky.
Similarly, the "too big to fail" argument is not so black and white. This crisis has shown that the collapse of quite small institutions, if linked to many other organisations, can be disastrous too. Another worry might be the questions the document does not answer, such as who will supervise financial markets? Still, there is time to debate these questions. And we must applaud Mr Osborne for providing us with a great deal of policy around which that debate can now be framed. That task should not have been the Opposition's responsibility.Reuse content