Monday, 21 June 2010

Light Touch Regulation

If anyone needed any more ammunition towards the lacklustre attitude towards regulating the financial services, then the Financial Services Authority provided it last week by welcoming the changes to the regulatory landscape, including the dismemberment and scrapping of the FSA.

In Osbourne’s first Mansion house speech, he laid the blame at the tripartite system of regulation, set up by Gordon Brown.  “No one was controlling levels of debt, and when the crunch came no one knew who was in charge”.  It is a valid complaint about the system, that there appeared to be too many chiefs doing too much, but the problems are as much to do with the culture of the system than the system itself.  Brown’s systems were set up to provide “light touch regulation”.  Whether this meant little or no regulation is open to debate, but this is what the FSA provided.

If we look at the chief causes of the credit crunch, the FSA were absent in advising against 105% mortgages, which several companies were providing.  They did not push for legislation or regulation against these products, which were taken up by many low earners.  The FSA did not issue guidelines against buying re-packaged debt, which included the debt from American sub-prime mortgages.  Many British companies thought they were on to a good thing by buying debt from American companies, and again the FSA was noticeable by its silence on this practice.  Then we come to the FSA’s conduct with RBS.

RBS were involved in an attempt to buy the Dutch bank ABN Amro, alongside the Belgian bank Fortis.  Trying to stop them was Barclay’s, who suddenly pulled out, possibly because the price was too high.  Because there was no guidelines on exposure to American Sub-Prime, heck American Sub-Prime was not seen as toxic debt, RBS signalled its intention to press on with the takeover.  A report on ABN Amro’s debt position was due.  In theory any take-over should have been postponed until this was delivered.  Except RBS, and Goodwin in particular, apparently wanted to seal the deal as quickly as possible. 

The FSA should have insisted that the debt report was seen and taken into account before any takeover could occur. There perhaps is an issue with Barclay’s behaviour during the takeover.  Instead of which, the FSA let the takeover which singlehandedly sank the British economy go through, unchecked.  This was the takeover which lead to the Government baling out the banks to the tune of £100 billion pounds, and the takeover which will lead to the cuts in services, in jobs, in livelihoods.

On Tuesday, George Osborne will announce his first budget, which he has dubbed an emergency budget.  When New Labour politicians line up to complain about the cuts and the pain, which they will, we should remind them that the reason for the pain happened on their watch.  They “saved the world”, by giving billions to the banks.  Banks who have shown no contrition and no intention to repay OUR faith in them.  We should remind them of three words which should shame supposed socialists, which appear to have been erased from the New Labour vocabulary.  We should remind them of light touch regulation.

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