Monday, June 21, 2010

A (somewhat belated) Reaction to Mansion House

As uncomfortable as I am saying this, there were quite a few measures that I actually liked in our new Chancellor's mansion house speech. It does seem that he does at least have a few sensible ideas about reigning in the financial sector.

The FSA No More
Firstly, let me say that there's a lot of idle talk about the failed tripartite system of regulation, there were undoubtedly problems with the financial regulation but it's hard to put this down to the structure of the agencies themselves. The complaints about the supposed "flawed tripartite structure" are little more than a soundbite.

The impression I get is that the FSA is being carved up with the macro prudential responsibilities being given to the Bank of England and the remainder becoming a smaller agency focusing on consumer protection. This sounds sensible enough although it's worth pointing out that there is some crossover between consumer protection and macro prudential regulation and this will need sorting out (the obvious examples here are things like the size of mortgages that lenders can issue and the loan to value ratio).

The idea of a Financial Policy Committee is a good one (indeed, I suggested we needed something like this back in 2008) although as has been pointed out there is a need for more work as far as the structure of this new body, it's relationship with the MPC and how it is to be held to account.

Overall, the only real negative of the new structure is the awfully large amount of power in the hands of the Bank of England, I do wonder if this is an entirely sensible move. I will also add that I don't think that these the majprity of these structural changes would have been much help in preventing the current crisis.

The Vickers Review
The Vickers review looks like it might have potential but it does raise the point that this does seem like a rather watered down version of what the Tories were promising. I do think that separation of investment and retail banking is a good idea and hope that they'll go ahead with it. I'll be watching with interest at what the result of this review is.

And Finally, Something More Ominous
Another aspect of the Chancellor's speech was the talk about China and the possibility of our banks expanding their operations into China, this strikes me as a very dangerous proposition. Iceland had already learned the hard way exactly what can happen expanding your financial services into other far larger countries, and I think it would be safe to say that China would not be nearly as forgiving as the UK was to Iceland. I'll admit that a lot depends on how such an expansion was managed, but it's hard to see how risk could be eliminated completely from such an expansion.

What worries me about this aspect of the speech is that it shows that for all the talk, the chancellor is still quite relaxed, the Chancellor has to realise that financial products are not like other goods, and that their sale carries serious risks, I'm not sure that he does.

1 comment:

Paul Garrard said...

I'm starting to worry about the ConDems - some of what they are doing is what we should have done in government. Thankfully not everything they do makes sense.