Simon English: Sands' warning - the next banking crisis starts here, unless the FPC grows teeth

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The Independent Online

Outlook Moaning banker alert. But wait, this one may have a point. Writing (with some style) in Thursday's Financial Times, Peter Sands gives the proposed new banking regulator both barrels.

It's pleasing to report that the Standard Chartered chief executive isn't stooping to the usual, dishonest banker threats to quit Britain if he doesn't get his way (he is leaving that to the yobs at Barclays, at least lately). Indeed, Standard Chartered is in many ways the antidote to our more errant banks. It does most of its business in Asia but seems content to remain based in London, in contrast to those that do most business here but act as if the entire world is desperate to lure them away.

Anyway, his concern about the newly created Financial Policy Committee seems genuine.

The FPC will replace the Financial Services Authority as chief bank cop sometime in the next two years.

Mr Sands worries that its approach is heavy-handed in the wrong directions. By constantly interfering with bank capital requirements, the FPC wants to dictate how much lending there is across the economy and how much those loans cost. At the same time, it doesn't want to make rules on loan-to-income ratios, so mortgages at six times a borrower's salary that inflate property bubbles will remain possible. Imposing rules in this area would be unpopular with the home-owning public; better just to constrain banks and hope that will prevent a repeat of Northern Rock.

By Mr Sands' telling, the FPC wants power but not responsibility. Terrified by the abuse metered out for the last banking crisis, it is trying to position itself to ensure it doesn't take the blame for the next one, rather than doing what may be necessary to prevent it in the first place.

William McChesney Martin, the Federal Reserve chief with the turn-of-phrase, famously said it was the job of the bank watchdog "to take away the punch bowl just as the party gets going". It should hinder frothy speculation by clamping down just as everything seems to be going well.

Mr Sands fears the FPC will lack the balls (he wouldn't use such an inelegant word) to act when it matters. And, as the next crisis is likely to concern government rather than bank debt, why isn't it focusing on that?

None of the FPC's proposed members has ever run a bank, he notes.

It is to hoped that Sands is wrong about all this. It seems more likely that he knows exactly what he's talking about.