Don't let banking lobby kill reforms, warns King
Bank's Governor says regulators could cave in under pressure from industry
A lack of clarity in the forthcoming banking bill could allow the financial lobby to wreck the ring-fence reforms, Sir Mervyn King warned yesterday.
Giving evidence to the Parliamentary Commission on Banking Standards, Sir Mervyn said that the legislation risked putting the onus on regulators to outline what financial activities should be permitted within the retail bank ring-fence.
"I think it would be wrong to leave it purely to the discretion of the regulator because that would increase the pressure of lobbying of banks directly on the regulator and indirectly on the government and parliamentarians," he said.
Sir Mervyn added that without a clear direction from Parliament, regulators would be forced to negotiate with the banks over the appropriate limits to the activities — and he suggested that the official sector would inevitably come off worse.
"If judgment ends up simply as a negotiation between the regulator and the regulated bank, there's only one winner in that and I think that will be a very bad outcome" he said.
However, there was disagreement between the Bank of England's deputy governor, Paul Tucker, and its director of financial stability, Andrew Haldane, who were both also giving evidence, about whether non ring-fenced banks should be permitted to lend to small and medium-sized companies.
Mr Haldane agreed with the Governor on the need for clarity in the ring-fencing legislation and warned MPs not to be swayed by arguments from the banking lobby that a robust approach to regulation would cut off the flow of lending to the real economy. "I think we've heard the argument far too much over the past few years and we must not be held hostage in doing the right thing by the notion that the banks will stop lending" he said.
The draft banking legislation put forward by the Chancellor would allow retail banks to continue to sell simple derivatives to customers, despite a spate of mis-selling scandals involving the instruments in recent years. But Sir Mervyn suggested to the committee that this was inappropriate. "It's impossible to differentiate between a complicated and simple derivative," he said. The Governor also said the leverage limits outlined in the draft legislation were too high.
Sir Mervyn called for legislators to set up an automatic review of the effectiveness of retail ring fences within five years to ensure that banks are not "burrowing under" the barrier. Relying on the regulator to act if it believed there were abuses taking place was, he said, a bad idea. "We're always being told the Bank of England is too powerful – this is another power I do not want to receive" he said.
Emergency landing at Heathrow sparks further controversy over London airport capacity
Unrest may spread across Europe, warns Red Cross chief
French government seeks to ban extreme right-wing group
BNP and EDL accused of attempt to fuel racial hatred after Woolwich terror attack
You want to get an Eton scholarship? All you need to do is answer four (not so simple) questions
- 1 What, let gays get married? We must be bonkers
- 2 Rocky Horror star Tim Curry 'suffers major stroke'
- 3 Exclusive: How MI5 blackmails British Muslims
- 4 Lord of the Sings: Sir Christopher Lee, 91, to release heavy metal album
- 5 Exclusive: Woolwich killings suspect Michael Adebolajo was inspired by cleric banned from UK after urging followers to behead enemies of Islam
BMF is the UK’s biggest and best loved outdoor fitness classes
Find out what The Independent's resident travel expert has to say about one of the most beautiful small cities in the world
Nook is donating eReaders to volunteers at high-need schools and participating in exclusive events throughout the campaign.
Get the latest on The Evening Standard's campaign to get London's children reading.
Win anything from gadgets to five-star holidays on our competitions and offers page.