BBA tries to foil Europe-wide regulation

Britain's banks are trying to head off an ambush to force Europe-wide regulation as the UK's critics seize on failings exposed by the Northern Rock crisis.

Regulatory confusion in Britain over Northern Rock's troubles came just before key meetings to shape the future of European banking regulation. The British Bankers' Association has rushed out proposals for regulatory reform to push back attempts by France, Germany and other supporters of pan-European regulation to drive through their proposals.

The BBA wants individual European banks to be supervised by the regulator in their home country and not by an overarch-ing European watchdog. Britain has trumpeted the merits of its regulatory regime to the annoyance of European rivals as London has grown to rival New York as the world's leading centre for finance. But the first real test of the system introduced by Gordon Brown in 1997 produced a run on Northern Rock's deposits and a panicked bail-out by the Government.

Angela Knight, the BBA's chief executive, said: "Every-thing is in play now because the supporters of the lead-regulator concept in the biggest financial centre in Europe and the second-biggest financial centre in the world have just dropped the ball.

"People got fed up with the UK telling them how to do it. The industry has now taken the lead in resolving the regulatory issues but we have played right into the hands of those who want a European regulator."

The credit crunch and the Northern Rock affair have called into question the three-way split between the Bank, the FSA and the Treasury for ensuring stability of the financial system. In a strongly worded speech last night, Richard Lambert, the director general of the Confederation of British Industry, said the authorities and the tripartite system had failed.

"For whatever reason, this tripartite system has failed to deliver the goods. Perhaps there are just too many conflicts inherent in a system where three different institutions, with three different policy priorities, have to come together to tackle a fast-moving crisis.

"The reputation and standing of the UK as a world financial leader has also been tarnished. Outside the movies, a run on a bank is something that happens in a banana republic."