Offering an extraordinary insight into the state of relations between the Bank of England and the Treasury, the Governor of the Bank, Mervyn King, yesterday told MPs that he had not been consulted on, nor even seen a copy of, the Government's White Paper on banking regulation, to be published next week.
In his evidence to the Treasury Select Committee, Mr King also vented his frustration that the Bank had been given a statutory responsibility for financial stability in this year's Banking Act, but had not yet been offered any tools to do the job, nor had an answer to the question: "What exactly is it the Bank is expected to do?"
Going further than he did in his Mansion House speech last week, Mr King again voiced his uneasiness at the "misalignment" between the Bank's statutory duty to help preserve financial stability and the lack of powers, or a "macro-prudential tool kit," to achieve that.
Confronted with the suggestion offered by Lord Turner, the chairman of the Financial Services authority, that the Bank and the FSA set up a joint committee to oversee financial stability, Mr King seemed dismissive, saying that it was "not the right starting point". "If creating committees was the answer to our problems we wouldn't have any," he added. The disarray among the "tripartite" authorities will do nothing to reassure critics o f the system that it is yet on a sound footing.
According to BBC reports, the shadow Chancellor, George Osborne, wants to return many of the powers over banking oversight the Bank of England lost to the FSA in 1997, when Gordon Brown reformed the system. Thus the debate over the future of regulation and the role of the Bank threatens to become politicised as the Bank's sectional interests come to be identified with Conservative Party policy, however inaccurately, and where the Governor is in apparent open defiance of a Labour Chancellor. The Conservative proposals will be published in the next few weeks, probably after the Government White Paper.
As things stand, Mr King does not give the impression that his views on the White Paper have been sought out by the Treasury.
"It all depends on your definition of consultation," he said. "I have not seen a draft of it, no. No doubt we will have a chance to see it before it appears... I've no idea what range of issues the White Paper will cover. I do not know what will be in the White Paper. Whether anybody else does, I don't know."
In answer to question about the new RBS chief executive Stephen Hester's £9.6m pay package, Mr King added that he was "disappointed" that lessons from the crisis had not "sunk in".
Mr King also stressed that it was entirely a matter for Parliament as to "who does what", but that he was much more concerned with the "what" than the "who". Mr King repeated his belief that some way had to be found to limit the damage that large banks can do to the financial system, whether that is through a legal separation of investment and retail banking, or some form of, say, higher capital requirements on banks that are growing, undertaking riskier business and posing an increasing systemic risk because o f their "interconnectedness". A "tax on size" was suggested by Lord Turner yesterday.
Mr King wants to move away from the "Basel view" of banks as atomised institutions and a recognition that they are, in varying degrees, of systemic importance to the system as a whole. Mr King said that such a "sophisticated" set of regulatory requirements would take time to frame, and that was more crucial than who got to use them.Reuse content