Bank of England said to be slow in ‘fessing up’ pre-crisis mistakes
The Bank of England was slow in “fessing up” to mistakes made ahead of the financial crisis and will have to win trust by showing it can take unpopular decisions, the financial watchdog said on Tuesday.
Financial Services Authority Chief Executive Hector Sants told lawmakers the central bank has admitted to errors but in a “more elaborate and lengthy process” than the FSA has.
“The FSA had a cleaner, more straightforward approach to fessing up,” Sants said.
Few central banks or regulators spotted the global crisis coming, forcing policymakers in Britain and, again this week in Ireland, to take radical and expensive steps to shore up banks.
Britain is scrapping the FSA and handing many of its supervisory powers to a new prudential regulatory authority at the Bank that will be headed by Sants to plug gaps seen during the crisis.
“The level of communication, the level of interest in the central bank on financial stability issues, I think, was recognised by all to be very low in the pre-2007 period,” Sants told parliament’s treasury select committee.
The planned Financial Policy Committee (FPC) to be based at the Bank, and the central bank itself, must lead on financial stability in future, Sants said.
Financial firms fear the revamp of UK supervision will be disruptive, expensive and weaken the country’s ability to shape European Union financial rules.
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Some top FSA staff have already left ahead of the reorganisation and on Tuesday the watchdog announced that Dan Waters, leader of its conduct risk and asset management unit, had resigned.
Tim Dolan of Pinsent Masons law firm, said the FSA is struggling to retain staff.
“One had hoped that when Hector Sants decided to remain with the new regulatory bodies, that some other senior staff would also stay. That is not proving to be the case and is very disappointing,” Dolan said.
Sants said he was confident the new system will be put in place in time for the 2012 deadline even if there are some internal distractions along the way that will curb the flow of new initiatives.
“Once we go through transitional pain, the new system will be a better system than the one at the moment,” FSA Chairman Adair Turner told the lawmakers.
“We do not think we have been losing the argument in Europe,” Turner added.
But it will be “tricky” to devise a detailed mandate for the new FPC which will have powers to curb excessive credit growth, Turner said.
Such actions may spoil the “good feelings among society being generated by that credit boom,” and mechanisms were needed to enable a trusted authority to take them, Turner added.
“The challenge will be for the Bank of England to earn that trust over time,” Turner said. A new Consumer Protection and Markets Authority (CPMA) will also be set up but the central bank can override it.
Turner said a chief executive designate of the CPMA will be in place by next spring as the new supervisory system moves into “shadow” form ahead of a 2012 deadline for implementation.
“I don’t think it’s going to be seen as a second-best organisation,” Turner said of the CPMA. But it will need powers to ban products if lawmakers want it to be interventionist, Sants said.
The FSA is reviewing tighter rules on home loans to avoid a repeat of the housing bubble Britain saw in recent years but industry says the plans are too onerous.
“We are not going to rush it. We don’t think there will be a major restriction of mortgage credit,” Turner said.
Source: Reuters