Outlook There is a pleasing symmetry in the suggestion, as yet unconfirmed, that the Shadow Chancellor George Osborne plans to return the powers of banking supervision to the Bank of England if the Conservatives win next year's general election. When Gordon Brown arrived at the Treasury in 1997, one his first acts was to hand the Bank of England independence, simultaneously stripping it of its responsibility for regulating lenders. The latter shift so enraged the then Governor of the Bank, Eddie George, that he came close to resigning.
Some 13 years later, it is possible that Mr Osborne might also find himself at odds with the Bank's current Governor, though Mervyn King will at least have had more than a few hours notice of the Tories' plans. After all, Mr King has let it be known that, while the Bank would welcome more powers, particularly given the plans afoot for it to begin policing systemic risk, that is not the same thing as taking back responsibility for regulating the banking sector. Nothing he said yesterday suggested that he wants all the powers of the Financial Services Authority.
We don't yet have the full details of what Mr Osborne's team is proposing – or, for that matter, the plans for reform still being drawn up by the current Chancellor Alistair Darling, which are due shortly.
What is likely, however, is that the Conservatives would not want to dump the FSA altogether. It is difficult to imagine a return to a world in which Bank of England officials would be expected to ensure, say, that lenders were not overcharging customers for loan insurance.
What would make more sense is to give the Bank more power over those institutions judged large enough for their actions to have potential consequences for systemic risk. If the Bank is to be given the macro-prudential responsibilities now deemed essential if we are to avoid future banking crises, it would be illogical for it not to have some powers of oversight of the institutions that are large enough to cause such panics. This is the thinking behind President Barack Obama's plans to give the US Federal Reserve a greater role in top-level banking supervision in America.
Inevitably, the debate about banking regulation is bound to be seen through the prism of personality, with shifts in power and responsibility portrayed as victories and defeats in a turf war (though the FSA chairman Lord Turner describes himself as agnostic on the issue of returning the regulator's powers to the Bank).
However, it would be a mistake to fall into this trap. The argument is not so much about the competence of specific institutions (the Bank of England, after all, had its Northern Rock moment with BCCI) but how the system is best organised and what it should be attempting to do.