Bank defies the Treasury again as it seeks new powers
Financial Stability Report set to challenge Chancellor as Bank of England insists banks should be smaller
The Bank of England today launched its play for increased powers over the banking system, just days before the Government publishes its own White Paper on banking regulation.
The latest Financial Stability Report from the Bank is likely to heighten the tensions between Mervyn King and the Chancellor, Alistair Darling, who yesterday said the Governor's views on banking regulation had been considered, despite his claims earlier this week that he had not been consulted on the content of the White Paper, which is published next week.
The Bank's report, meanwhile, said that "banks should not be too big or too complex" – a view rejected by the Chancellor in his Mansion House speech last Thursday – as well as warning that the UK's financial system is still "vulnerable to high leverage" and that the "funding gap" between retail deposits and loans was currently being filled to a large degree with taxpayers' money.
The Deputy Governor for Financial Stability, Paul Tucker, said: "The policy debate now underway matters enormously if we are to achieve a more stable financial system in the future."
The Financial Stability Report sets out in detail some of the powers the Bank deems necessary to manage systemic risk, including:
*Greater disclosure of the risks that institutions run, possibly including public disclosure of their regulatory capital positions;
*A "credible threat of closure/wind down for financial institutions";
*A pre-funded deposit insurance scheme;
*Higher capital and liquidity buffers to "self-insure" against stress;
*Enhanced capital requirements for banks that pose a systemic risk to the system;
*A debate on whether banks that are "too big to fail" should be broken up.
The Bank said that the larger banks should be forced to become smaller and simpler in their legal structures, warning that it may be impossible to regulate groups that comprise as many as 2,000 separate legal identities.
The report marks another stage in the Bank's campaign to establish the philosophy of "moral hazard" to the centre of banking oversight. "If banks, shareholders or creditors are protected from losses, banks are more likely to take excessive risks and their incentives to monitor and discipline management are weakened," it said. "A credible threat of closure is inherently more difficult for firms which are large, complex or which have international reach."
The Bank also persisted in its preference for "narrow" or "utility banking", which has been ruled out by the Treasury. "Possible measures could include limiting the scope of banks' businesses to a narrower range of relatively low-risk activities, or imposing higher capital and liquidity charges." The Treasury is thought to view these ideas as unrealistic.
Many of the report's proposals are relatively uncontentious, but the desire of the Bank to intervene to vary the capital requirements of banks both to manage systemic risk and to tame the credit cycle is proving an increasingly bitter point of contention between Threadneedle Street and Downing Street, which is suspicious of it.
Some believe that the Bank's proposals would simply mean that commercial banks would be faced with two possibly conflicting sets of regulatory demands.
There is also the belief in some quarters that granting the Bank its wish to manage the credit cycle, on top of its existing control of interest rates, would mean turning over the management of the British economy to an unelected figure in Threadneedle Street – politically impossible. And while the Conservative Opposition appears more sympathetic to Mr King's wishes, the Government does not.
Malaysia Airlines plane crash exposes alarming flaw in airline security: over one billion flights made last year without stolen-passport check
Kim Jong-un wins 100% of the vote in North Korean elections
Teacher shows sex tape featuring herself to pupils during class by mistake
Malaysia Airlines Flight MH370: Oil slicks in South China Sea ‘not from missing jet’, officials say
Swarm of killer bees sting woman 1,000 times
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
Poor 'live like animals' says Boris's privately educated sister after going on 'poverty safari'
Exclusive: Impact of immigrants on British workers ‘negligible’
Vince Cable: Teachers 'know absolutely nothing' about the world of work
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
- 1 International Women's Day 2014: The shocking statistics that show why it is still so important
- 2 Australian man Rod Sommerville reacts to bite from deadly snake by reaching for cold beer
- 3 Teacher shows sex tape featuring herself to pupils during class by mistake
- 4 David Cameron resorts to paying for Facebook fans because not enough people like him
- 5 Steve Irwin’s final words: Cameraman present at death opens up about deadly stingray attack for the first time
iJobs Money & Business
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£55000 - £70000 per annum + benefits: Pro-Recruitment Group: In-House Corporat...
£80000 - £100000 per annum + benefits: Pro-Recruitment Group: In-House Opportu...
£30000 - £35000 per annum + generous benefits: Pro-Recruitment Group: Mixed Ta...