Outlook When does lobbying become undue influence? Sir Mervyn King certainly appears to feel that the activities of the banks have been straying into the territory of the latter when it comes to their battling against the Bank of England's demands that they hold more capital.
Yesterday, in his final appearance before the Treasury Select Committee, the Bank Governor complained that banks had been putting undue pressure on his regulators, who have demanded they strengthen capital buffers by billions of pounds.
This, he said, had been effected by their intense lobbying of senior politicians and officials, including the occupants of numbers 10 and 11 Downing Street, to get the Bank's supervisors to "ease off". Should we be concerned by this? The banks might argue that they surely have a right to put their case, just like anyone else, and particularly if the regulator is being unreasonable.
The Governor's apparent demand that they simply agree to accept whatever medicine his subordinates demand behind closed doors in rooms that would have once been smoke-filled is scarcely tenable in the modern age. It is not as if things always went according to plan when it was done that way. It is true that the Bank was, in the past, often able to organise the rescue of an institution before anyone realised that there was a problem. On the other hand, both BCCI and Barings show the dangers of operating entirely behind closed doors. And hasn't the debacle at the Care Quality Commission clearly demonstrated the importance of ensuring that people are able to watch the watchmen.
The Bank's watchmen shouldn't be exempt from this. But that is not to say that the Governor doesn't have a point. It is quite clear that during the last Government banks aggressively lobbied the ministers and their officials. Those ministers and officials then aggressively lobbied the Financial Services Authority. The result was the much vaunted "light touch" regulatory regime that proved to be an unmitigated disaster and contributed greatly to the disproportionate impact the financial crisis had on Britain when compared with most of its international competitors. Sir Mervyn has called on politicians to declare if they have been lobbied. He is quite right, they should do so, as a matter of urgency. If there is a pressing need to shine a light on the work of the banks' regulators, it is no less important to do the same for the relationship that regulated firms have with politicians. Andrew Tyrie, the chairman of the Treasury Select Committee, yesterday suggested that he would take up the cudgels on this issue. The sooner the better.