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How much power for Bank of England?

Robert Peston | 08:50 UK time, Thursday, 25 June 2009

Here's a funny thing.

Bank of EnglandFollowing my note of yesterday on Tory plans to give the Bank of England much greater authority over banks and insurers, I've been deluged with messages from bankers and regulators saying they fear that George Osborne would be giving the Bank too little power, rather than too much (and no, these missives haven't all been signed "Mervyn").

Here are their fears.

If the Tories were to give the Bank of England regulatory and supervisory responsibility for only the biggest banks and insurers - what are known as high-impact firms, those whose failure would have the biggest impact on the economy - the rump of the FSA left behind would become the lamest of lame ducks.

The Bank of England would be seen as the seat of real power in the regulatory game. It would be the glamour employer, if regulation and supervision can ever be glamorous. So the more able regulators and supervisors - the Ronaldos of risk assessment, the Kakas of capital adequacy - would want to work there, not at the FSA.

And the negative impact on the FSA would be immediate: such is the power of the Tories' substantial opinion-poll lead when an election looms, the FSA's current ambitious programme to recruit loads of better staff would grind to a halt.

But curiously those anxious bankers and regulators are not using their fears that the FSA would become the equivalent of a non-league side as a reason to promote the status quo (although there are some who think that the so-called Tripartite system can be improved with a bit of tweaking).

They say that if the Bank of England is to regain a role in supervision and regulation, there are two superior options.

One would be a full-scale merger of almost the entire FSA with the Bank of England.

The FSA's market regulation and financial capability bits might be left out of this merger. But everything else - some 2000 staff monitoring the health and business conduct of all financial institutions - would become part of the Bank of England.

This would present a management challenge. And the Bank would become a remarkably powerful institution - probably more powerful than the Treasury.

But the new institution would be seen as coherent. And with the right decentralised structure, it could well be effective.

The alternative is the so-called Twin Peaks model - which the chairman of the FSA, Adair Turner, hinted he rather liked in his evidence to the Treasury select committee on Tuesday.

This would see the Bank of England taking charge of prudential supervision and regulation of all financial firms, whether they were big or small. The Bank would determine whether each and every bank, securities firm and insurer had enough capital and liquidity and whether they were managing themselves in a sensible prudent manner.

The FSA would remain in existence as the assessor of the products sold by financial firms and also the evaluator of the selling methods of financial firms. It would determine, to simplify, whether you and I are being ripped off when we invest in an ISA, or buy insurance, or acquire a new credit card.

There is some logic to this split. It's the system that exists in Australia and the Netherlands, where it seems to have worked adequately.

But this division between prudential regulation and conduct-of-business rules is not completely clean.

Take for example the highly topical question of how much banks should lend in a mortgage as a percentage of the value of the relevant house, the so-called loan-to-value ratio.

This is relevant to prudential supervisors, in that it's an important factor in determining whether a bank is taking too much risk when lending. And it's also relevant to conduct-of-business regulators, who are concerned about whether customers are over-stretching themselves when borrowing.

In other words, there are benefits in combining within the one house both prudential and business-conduct regulation.

But I am absolutely clear that Osborne will split them. And no one tells me that would be a disaster, though some don't like the split.

The more pertinent question is whether Osborne would transfer to the Bank prudential responsibility for the biggest firms alone or whether he will give put the bank in charge of assessing financial risks being taken by every single financial institution.

Between now and the announcement of his decision, he'll be under intense lobbying pressure from the City to go for a fully fledged Twin Peaks system.

That said, whichever way Osborne jumps, the Bank of England will become much larger and more imposing. Within the context of the UK's mountain-range of economic and financial institutions, it would be moot whether the Treasury or the Bank of England would be Everest.


  • Comment number 1.

    Please - no Ronaldos or Kakas in any regulatory bodies. We don't need flashes of brilliance punctuated by sulking and posing. We have too much already

  • Comment number 2.


    We don't need the bloatware of more regulations, or even more regulators. We just need to remove the ability of banks from creating money out of thin air:

    "created out of and de-created into Absolute Nothingness by the mere fiat of the human will" Frederick Soddy, Wealth, Virtual Wealth & Debt, 1926.

    I urge you all to read this book and weep.

  • Comment number 3.

    I would put the turf war arguments aside.What's in the public interest, not that of the City. Should the Bank set interest rates and be the supervisor / individual regulator of banks and large important financial companies. Some have said there could be a conflict of roles ( House of Lords committee that you dont reference in this debate for unkown reasons) - monetary policy could be set to bolster banking capital and liquidity issues. Banks could take advantage of the potential conflict. On the other hand, how could you expect the Bank to be responsible for financial stability without knowing in detail and having the power to find out what each large bank is doing internally. Very clear internal firewalls would need to be set up within the Bank.

    But lets not forget the real hurricaine facing recovery - it aint turf wars between bureaucrats. Mervyn King yesterday emphasised that the credit markets are impaired by bank deleveraging and his colleague said normality in bank lending might not recover for years.This is thwarting the rate of recovery. Bank's capital has been restored only to save them - not to restore credit to non bank corporates. What permanent capacity is being lost in the economy due to this? I was astonished that noone on the Treasury Committee asked about the effectiveness of QE. 96 billion in and noone knows what is being done with liquidity provided to the gilt sellers. Who are the gilt sellers? Where is the breakdown of them by sector - banks, insurance companies,pension funds, overseas investors?

  • Comment number 4.

    During booms regulation fails. We've seen it many times. No body spoke up about 125% mortgages (negative equity in a can).
    The FT today has an article saying bankers are going back to their 'old ways'. We have short memories so the only lobbying I'd like to see is pressure being put on the government (and the next government) to change the system and stop this from happening again in the short term. In the long term it will certainly happen again.
    What happened to the debate on moral hazard. I'd love to gamble with someone elses money and take much of the profit and non of the risk.

  • Comment number 5.

    Apologies for going off topic here but I've read on another blog that RBS, HSBC and Barclays have subsidaries which trade with Iran. Does anyone know if this is true or not? If it is, I'm sure that a lot of people in Britain, wouldn't want a bank which they own, RBS, to be be supporting a regime which guns downs protesters. I certainly wouldn't anyway. Maybe this is something which Robert could look into?

  • Comment number 6.

    The weakness of our current arrangements is that when a financial business has not broken the criminal law, the regulator assumes the role of investigator, prosecutor, judge and jury.
    All the proposals tinker at the edges. They move a department from one body to another and change it's name but not structure and role.
    It's all wallpaper for talking heads. The fundamental problem is left unaddressed.
    Let regulators investigate and prosecute. Remove their power to Judge and sentence.

  • Comment number 7.

    What we have seen under Labour is a splitting of regulatory responsibility with disastrous consequences - the FSA, the Treasury and the Bank of England could all fail to take responsibility for effective regulation and blame each other. Typical Brown.
    What we certainly need is a regulator with the scope and power to ensure effective financial regulation (of banks and other financial organisations), low inflation and a stable currency. It can only be the Bank of England.
    The Treasury is subject to political control by the government - which is why we have a massive fiscal defecit (for which read impending bankruptcy due to this incompentent government) and the FSA has never demonstrated a willingness or ability to tackle anything of any serious consequence.

  • Comment number 8.

    "So the more able regulators and supervisors - the Ronaldos of risk assessment" !!!????

    Oh come on Robert - the FSA and other regulatory bodies such as the FOS and the FSCS are full of box ticking civil servants on extortionate salaries - they justify their huge salaries and their bonuses for failure by claiming they can only get the best if they pay high like any city institution. The whole system is rotten to the core and now you suggest they should have some kind of superstar status like the best footballers !! How can any of these executives justify getting paid more than the Prime Minister ?

    Can we clone the Executive Mayor of Doncaster and come down to sort these over paid prima donnas. The only extra money that needs spending is for the new brooms required to sweep away the dross. Why are we spending hundreds of millions of pounds on a regulatory system that has failed.

  • Comment number 9.

    The BOE as bank regulator, and the FSA doing "customer care".
    Sounds good to me.
    As a "regulator", the FSA has proved itself to be the biggest failure in history.
    For once I agree with the bankers....the BOE should have all the power.
    We've all seen what Browns' ideas on regulation (or lack of it) can do.

  • Comment number 10.

    To quote the press today 'BAB' (Bonuses are Back)

    It is just impossible to comprehend why the Bank of England is seen as the solution to all financial ills. They and their present governor, Mervyn King did nothing to prevent the credit bubble and the associated asset price inflation which is at the root of the present collapse despite understanding it was a problem and knowing that they should have done something about it.

    How is it possible for any intelligent economically literate person to consider that an unreformed Bank of England under its present head (and MPC) could possible have any positive contribution to make to a recovery and stability? Of course, I answer my own question, - such a person is neither intelligent nor economically literate!

    Te buffoons are once again in the ascendant!

    MMG - Mervyn Must Go

    PS presently engaged in designing a 'MMG' Medal (see/hear today's Radio 4's Today programme) I thought a bag of cash running out on the obverse and the letters MMG on the reverse with the text 'Mervyn Must Go' around the circumference - and, of course, made of brass with a yellow streak running through it on the special version reserved for regulators. To be awarded to all economics / MBA graduates of Harvard and Balliol and any remaining masters of the universe!

  • Comment number 11.

    Make the BoE the judge and the FSA the investigator and prosecutor.
    This structure has worked for centuries to regulate other areas of society, building up by precedent a commonsense framework individuals and business' can understand and get reliable advice on.

  • Comment number 12.

    So to be clear, the bankers want more regulation?

    Wow - these are strange times we are living in!

  • Comment number 13.

    The BoE needs to concentrate on macro issues of economic and financial management and sustainability which includes regulating major financial institutions setting capital ratios and restructuring issues. The FSA should concentrate on protecting the consumer at a more individual or enterprise level setting requirements for banking practice codes of conduct etc.
    For the big institutions (too big to fail) there must be some form of direct public supervision at N exec board level.

  • Comment number 14.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 15.

    I am amazed Robert is focusing on this part of Mervyn's comments yesterday, surely this bit, where he points to a potential fiscal crisis is of far more import?

  • Comment number 16.

    It's a shame that these Bankers and Regulators were not so quick to inform you of their concerns when the banks were busy gambling away assets.Maybe their bonuses encouraged them to keep their worries to themselves.

  • Comment number 17.

    The present system of having three bodies dealing with aspects of regulation is ridiculous. Equally ridiculous is are the pay and skill levels of those regulators. A regulator at whatever level has to have in depth knowledge of the system he/she is regulating and be on an intellectual par at the very least, with the bankers being regulated if they are to be effective. There's the old saying - 'If you pay peanuts, all you get are monkeys'. No disrespect to those people currently doing the job.

    Another thing, the Treasury should keep its nose out of both regulation and any direct involvement in running failing banks. The civil service culture is totally incompatible with the banking culture and their actions are politically driven, as evinced by their dire handling of Northern Rock.

    I am just an ordinary member of the public, retired even, so what do I know?

  • Comment number 18.

    This is all very confusing.

    As in so many other things these days, the route taken is incredibly important, isn't it?

    But frankly, as your average Joe Public, it's difficult to evaluate the choices (not that I feel I have any control over them). There's simply too many sources of conflicting information. Opposing tribes propose different solutions and then decry the others, putting their effort into defending their own position to the letter.

    Who makes the final choice anyway? The govt? The electorate? The bankers? The media?

    Why should it be polarised choices between opposing, complex solutions anyway? Surely, as in evolution, engineering and life, compromises are best. A bit of this, a bit of that, a tweak here, accept an imperfection there. Betting the farm on one approach or ideology is doomed to the kind of systemic bust we're seeing now, isn't it?

    I'm not sure where I'm going with this really...

    It's just that enormous decisions seem to be made on the basis of *who* says they're right, not necessarily because they *are* right. It all feels a bit "Wrong Trousers" to me; the part where Gromit is frantically laying tracks in front of the speeding model train he's stuck on. The destination depends on the tracks laid. Who's choosing the pieces?

  • Comment number 19.

    Accountability - where is it?

    A report today shows that the 'Rock response' by the treasury was 'leisurely' and it was known way back in that there was nothing in place to handle such a crisis.

    Do we live in a society where people can simply balls things up but walk away from it (or in this case - get promoted!)

    Whilst I don't believe it would have made any difference to whether there was a recession or not - but at least the Government could have tried to maintain stability in the banking system.

    If banks are 'too big to fail' then there has to be a method by which they can be prevented from failing by the biggest institution in town - the Government. If this had been in place then there wouldn't have been the rushed panic and careless hurling of public money around to save the banks once they were partially over the cliff face.

    If (as I suspect) the Treasury has no chance of preparing for this sort of event, isn't it time the Government took over the practice of lending money and made it not for profit?

    The benefits to the Economy would be immense, growth and production would go unhindered, people who have to borrow (Businesses, Homeowners) would feel much more secure and the system as a whole would be more stable. It also has the advantage of being able to control interest rates once more (because one thing that has been forgotten is that the LIBOR controls the street rate - not the BoE - the stigma attached to going to the BoE for funds is worth a premium on the LIBOR, as NR found out to their cost)

    The only disadvantage would be that big fat rich men would no longer be able to hold us all to ransom by lending us our own money back years after it was extracted from our forefathers through taxation and circumstance.

    The fact that the Government isn't remotely interested in taking over the function of lending is a clear sign that the country is governed by the same 'fat old men' who are profitting from current lending practices.

  • Comment number 20.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 21.

    How much of the lending capacity that the nationalised banks have agreed to release as part of their bail out package has been committed to their customers? Very little. Royal Bank of Scotland have £24bn to lend by next March and are so far behind in lending it that they are having to write to the Treasury every month to explain why. There is a massive gulf between what the banks have committed to in public and what they are doing in private - why are we letting them off the hook so easily?

  • Comment number 22.

    The fundemental problem with all the proposals or suggestions for giving the BOE greater authority over the UK banks and insurers is the the length of time it would take to transfer and integrate the necessary additional powers into the BOE management structure and ammend the operating procedures accordingly.

    In the first place any change will involve moving around a number of extreemly ambitious people with huge egos and their first priority will be to make sure they do not miss out on the payment and promotion stakes. Then there will be the problems associated with integrating these departments into a slick fighting body.

    Of course while all this change is taking place the city slickers will see it as a golden opportunity to line their own pockets with as much as they can and for as long as they can, before newer and better equipped regulatory body can get it's act together.

    The only way to stop this from happening is to change the regulatory rules to allow directors and senior managers who have rewarded themselves handsomely even though they have been less than diligent when carrying out their duties are treated as criminals and are prosecuted. persoor the

  • Comment number 23.

    I thought the country's experience of The FSA is that is has been proven to be a complete and utter lame duck. Not just in terms of bank regulation (of ethereal banking derivatives trading,) but also in terms of the Sales Culture of banks and the damage that does.

    What, therefore, is the point of giving the FSA any powers at all? The best we can hope for is that it gets ABOLISHED, (as an example to all bankers that the rest of the country actually does want regulation taken seriously.)

    At the moment it seems all we will achieve by keeping the FSA, in some form or other, is jobs for ex-bankers, who couldn't sell, trying to keep the sales culture in banks alive!

    I got fed up with my bank moving the terms and conditions goalposts for mortgages, even if the mortgage was 2,3,4 years into repayment. Specifically increasing the charges for closing the mortgage, spuriously calling (and justifying) them as deeds retrieval fees. All the FSA did was rubber stamp outrageous practices. It made it look like the banks were in charge of the FSA, not the other way round. It all got very stupid.

  • Comment number 24.

    I put my money into a Bank or Building Society and expect the organisation to look after it. Any other money I invest and take the risk I might lose it. So why not restrict Banks to this model.

    We need a single and proper Regulator of Banks without split responsibility. i.e. the BofE - that way someone is in charge and accountable. But we also need a son of Glass-Steagall - separate Banking from Investment Banking. This worked for 70 years until Clinton repealed the Glass-Steagall Act in the USA and look what happened after that in 2007.

  • Comment number 25.

    Well we have all got 20 20 hindsight I know, but surely with the possible exception of Vince Cable and a few others, no-one saw this coming. No-one in the Bank of England, the FSA or the banks. So why worry about which individuals work for which organisation. We need a system which prevents silly risks being taken by institutions which are supposed to be cautious by nature. We also need a government which does not panic and knows what it is doing. The present lot have compunded a bad situation by further mistakes. 1. They should have let the banks go bust and then picked up the pieces so that no-one lost any money deposited with them. This would have avoided all the problems with extortionate bonuses, pensions etc. and more importantly would have sent a clear message to the banks, especially those in senior positions, that ill considered actionms will cost them, not the rest of us. 2. The VAT reduction has had little or know effect. Only the large shops and businesses have passed it on and it has not made very many people buy something, even big ticket items, rather than not. 3. Why reduce the interest rate ? This has merely transferred money from savers to borrowers without encouraging firms to borrow more to invest. No-one wants ti invest even if the money was interest free because there is no confidence. Slashing the interest rate just added to the loss of confidence. So, we need a government with a fresh start and the know how to implemment a system which controls the excesses without stifling investment and restores confidence which is what it is all about. After all, there hasn't been a world war, or a catastrophic natural disaster, so why are we all panicking ?

  • Comment number 26.

    19, Nail, Head and hammer there. Excellent post!

  • Comment number 27.

    Will there be a bonus scheme implemented for the new regulators who regulate more effectively?

    ( bit like the scheme that was in place before, during and after the latest banking collapse!)

  • Comment number 28.

    #9 stevewo

    Spot on

    We might also see some increase in the base rate
    and some fairness return for the millions of savers
    in the UK (disliked so much by Brown)

    As far as the FSA goes, do we need them at all ? let alone
    pump more millions into more people with not much to do ! (another useless Brown strategy)

  • Comment number 29.

    Here's another funny thing.

    On the BBC Business page it says Robert Peston in the "Business Editor" Surey this is a mistake and it should read "Banking Editor" !!!!!!!

  • Comment number 30.

    #23 spareusthelies wrote:

    I got fed up with my bank moving the terms and conditions goalposts for mortgages, even if the mortgage was 2,3,4 years into repayment. Specifically increasing the charges for closing the mortgage, spuriously calling (and justifying) them as deeds retrieval fees. All the FSA did was rubber stamp outrageous practices. It made it look like the banks were in charge of the FSA, not the other way round. It all got very stupid.


    Didn't you know!...

    Banking is the only 'business' where contract terms can be modified (to suit the bank) after the initial contract has been's what's known as a win/lose deal!

    Meanwhile all the FSA did...was collect their bonuses.

  • Comment number 31.

    You can have as many new beginings as you like but unless someone is prepared to become 'statesman like' and take control and dish out more punishment for failure then they are only tinkering !! We do not see much evidence of rigid control yet . This would not happen in China. Banks would need more reserves and and less very risky investment taking. Even Branson is more cautious than our bankers and that is saying something.
    It is the same for most of the public sector aswell.Even the BBC needs to change. How many of the staff went to Beijing ?

  • Comment number 32.

    Regulation in this instance is still about seeing how close the banks can sail to the wind without capsizing.

    A bank won't fail if it has 100% reserves. It won't make the sort of profits that we've seen for the last 80 years. But then, were these profits obtained honestly?

    No wonder that Soddy wrote: "I thought that, as a scientific man, I ought to know something about economics. So I studied the money system for two years and could make nothing of it. Then, one day, the truth dawned on me. What I was studying was not a system, but a confidence trick."

    Don't just take my word for it. Both Gordon Brown & Alistair Darling keep telling us that we need to pump "confidence" into the system. The system is not then running on real (or tangible) wealth growth, but is in fact in desperate need of constant growth from a continuing stream of trusting punters - much the same way a Ponzi scheme works!

  • Comment number 33.

    The banks attitude to all Laws and Regulations was summed up in a fabulous quote from the QC currently defending their right to screw customers, levy 'Service Fees' in the House of Lords. He actually said 'that under the terms and conditions of the Banking Regulations Act 1999 banks are only required to make the service fees for unauthorised overdrafts clear..nowhere does it say that they have to be fair' Obviously such candour means he has no future as a politician, I bet the suits in the banks were cringing when they read that!

  • Comment number 34.

    Like i've been saying for days... merge the FSA into the Bank of England! That way we wouldn't have a seperate and powerless FSA eating up public money.

  • Comment number 35.

    I would have thought a truly professional regulator would be looking for well paid employment but not super-stardom. In my view anyone who took up a career in regulation for the money would be suspect from day one. To overstate my case a regulator is usually power-crazy not money-mad.

    There are risks in one super-regulator and dangers in two competing regulators. However, it is essential that we have horses for courses.

    We need to focus on regulation that works not in the creation of unmanageable bureaucracies: big organisations do not usually work.

  • Comment number 36.

    Well Well, we all know that the banks created this mess starting in the fifties, no investments in wealth creation, manufacturing, only property, and since I have retired to live in Holland all Mr King has done with his recent comments is to ensure the pound drops even further against the Euro.
    He is ok, he has got a fat pension off the back of screwing up the economy. It is not this Government at fault, all Governments since the fifties have been led by the banks.
    we are a joke in Europe, and selling our Nuclear industry to the French, Churchill will be turning in his grave. Give the power to Alan Sugar and his peers, like Arnold Weinstock, real business men.

  • Comment number 37.


    "isn't it time the Government took over the practice of lending money and made it not for profit?"

    Easy now. If you keep coming up with sensible ideas like that, you may well end up being labelled a "monetary crank":

  • Comment number 38.

    19 writingsonthewall

    Have to agree fully.

  • Comment number 39.


    Much as I am interested to hear the fantasies of chancellor and shadow chancellor as to how they intend to re-engineer the physics of the future Economy (and add themselves to the very long list of those who have tried and failed to do so) - it's not really relevant to us today.

    What is relevant is that the FTSE has been sliding all week and today Corus announced 2000 job cuts and Birthday's another 700. BA staff do not appear to be keen on taking pay cuts to save the company and the militancy of workers is coming through at places like the Lindsey Oil plant.
    We also have more examples of free market forces failing dismally with the revelation that we're all still being 'ripped off' by our energy suppliers as they clearly operate a cartel of price fixing - totally destroying all the free market theories we have been sold as being 'the solution' to our Economic problems and the idea that this system is a fair one.

    We also have major companies posting large losses (Curry's) and inevitably there will be further job cuts on the back of the results from a number of multi-nationals, including the biggest - Nike.

    It seems clear that politicans are being driven by the desires and needs of the banks - that's how there can be talk about the recession being over. Sure the recession for banking may be coming to a close - the credit crunch may be easing (because lending is still miles away from even 'pre-boom- levels) - but the recession for the rest of the Economy is just beginning. The damage has been done, businesses are falling and no amount of credit can save them all now.

    Gullable politicans have been convinced that once the banks recover the rest of us will immediately spark back to life and everything will be ok again - oh how wrong they all are.

    What a lot of people are missing is that it won't matter how many (or few) powers the BoE has at the emd of this - there might not be an Economy in which to command these new found powers. The whole thing is a distraction from what all parties cannot get away from - huge job losses in the private sector which can only be rectified by transferring them to huge losses in the public sector (when the Tories - or Labour, or anyone else - has to start paying back the public debt).

    There are a lot of important people out there who cannot grasp the magnitude of the problem, they apply the policy that if they close their eyes and keep whispering "it will be OK" to themselves then it might happen.
    - or alternatively they are actually busy with their snouts in the trough grabbing as much taxpayer money as they can before the whole Economy dies on it's feet.

    I am so glad I started preparing myself for this back in 2004 - maybe I should be chancellor?

  • Comment number 40.

    #13 watriler

    I agree entirely; this would be the best structure and best way to split responsibilities.

  • Comment number 41.

    I actually listened to what Mr King said on the radio last night - and I think it was a clear admission that he has no control over the banks behaviour.

    This is the first time I have seen a government official refer to reality in that nobody can control this system - IT CONTROLS US.

    If a regulator regulates properly - they wil be accused of preventing growth

    If a regulator is to weak.....well we know what happens.

    However a regulator can only regulate a market if it has 100% of the information available to it. It cannot regulate a market it doesn't fully understand and it cannot regulate things it cannot see.

    Even if you get a 'super regulator' in place - at huge cost to the taxpayer - what does the regulator do when the US decides it's going to remove the Glass-Segal Act (as they did in 1999) for no other reason than political gain. The banks in the US have a competetive advantage over the UK banks and if we did not follow then we rapidly loose all our banks in takeovers and mergers with more powerful almagamated US banks.

    Whichever way you look at it the only regulation that will work is international regulation - and that mean international Governance - and considering most western countries have difficulty governing their own population - I'd rather not give them something bigger to mess up.

  • Comment number 42.

    You're arving a larf Bobby

    Surely the Ronaldos of risk assessment will be hawking their wares about the city like there is no mañana

    What the Bank of England will get it the Steady as you go Journeymen - the Jack Charlton to the cities Bobby!

    Ant the Ronaldos will be playing as part of a 7-3-1 formation for some oversized bank, making risk assessments on 20yr debts based on how much of a yearly bonus there is for him, his boss and his bosses boss and how far into a boom they are......... you think bonuses buy conscience? They buy staff out of conscience!

    As for mortgages, a free market is great - I would never argue against anyones right of choice..... but in some instances the benefits f the free market within the Money Lending industry work against the consumer......

    Example: I run a Bank and on average my customers earn 20k and I lend at 2.5 income so on average they get GBP50,000 per customer to buy a house and as my competitors are doing the same house prices are stable and affordable. I soon realise that in addition to the mortgage my customer (cheeky blighters) have borrowed an additional 10k for furnishings and new kitchens.... and they seem to be repaying it. As my business is Money Lending I'm missing a trick so I alter my multiplier because my customers can repay more than I thought.... and I make more

    .... my competitors soon catch on and before long we are all lending at 3.5..... and house prices go up by almost 40%......... but the cheeky customer is still borrowing from elsewhere, so we increase the multiplier again OUR BUSINESS IS DEBT!!!

    The great thing is that we make more money every time, appear to be giving the customer what he wants (as he doesn't associate the rise in house prices with us) and because there are a number of us in business it all comes under the heading of Free Market....

    Like I said... the free market doesn't always work to the advantage of the masses.... if Lending Money is the market

    Isn't it the governments responsibility to provide affordable housing for it's people... if so REGULATE.... or tell us that profits for Banks are more important!!!!!

  • Comment number 43.

    ...and from reading the comments below the piece - there are an awful lot of cranks around.....

  • Comment number 44.

    I think it is taken that the banks are currently in ''recovery mode'' at the moment.

    If as you say,and the BOE e.t.c. are saying, that it will be some years ahead before banks regain the real ''impact size'' of the past. New models of banking method will need to take this into account.

    If so,then in a few years time,the emerging banking/finnancial industry might be quite different from today's outlook.

    Who then, has the best crystal ball(s)? [remember,you only need one inmate to get it right(or wrong),not a battalion of 2000 accountants and economists(to be collectively,but not individually right or wrong)]

    Q:Does an ongoing fix-the-new-road-ahead(''bypass!'')and/or patch-and-repair maintenance(''new surfacing!','''tweaking''?) do ?
    [Beware: Gold-plating ahead !]

    A:I think you will find one follows the other.

    Fact:Mr King has stated on many previous occassions of a reluctance to forecast and the BOE seem quite fond of their fan charts.

    Does this suggest the BOE should be leading the way ? What is the FSA's track record ? Would new personnel at either institution be welcome? What do other organisations and individuals have to offer ?

    How much am I being paid ? Oh...ah well,.... must go.

    Off to catch a Trojan calf lying next to an oxymoron.

  • Comment number 45.

    Robert you really have given up the ghost on New Labour:
    "I am absolutely clear that Osborne will split them".

    We have moved on from the days when it was a question of if the Tories win what would they do rather than "Osborne will split them".

    Of course, everyone expects the Tories to win if Labour persist in keeping Gordon Brown. However, as time goes by towards next June and those Labour MPs in marginal seats, including some in the Cabinet, get more and more twitchy I would not be at all surprised if there was either a successful coup, probably by Alan Johnston, or Brown fell on his sword, under pressure from Lord Snooty. The former scenario is most likely as the PM covets his role as much as anyone in living memory.

    A change just before the Christmas recess would really put the cat among the pigeons, particularly as the Unions would rally around Johnston like Real Madrid have rallied around Ronaldo to save him from the arch enemy Sir Alex. I dont think Osborne should take your comment necessarily as a call to a coronation.

  • Comment number 46.

    'Banks that are too big to fail are too big' says Mervyn. Who can argue with that? So why on earth have we now got this monster called HBOS/Lloyds. Surely this was the biggest mistake ever.

    The worst thing that has happened over the last few years is growth by aquisition rather than by expansion through profitability. This seems to have lead to companies becoming too big and losing control of their affairs.

    The whole country is in a position where it needs a complete overhaul of how it is run and the Bank of England should be heading that restructuring. We really do have to put our own house in order without any further delay.

  • Comment number 47.

    Mervyn King knows that it won't be over for the gay gordon dancers and their power surge until the fat lady of threadneedle street bends over , thinks of inkland and singks at the going down of her cutty sark .


  • Comment number 48.

    The Financial Services Authority should be transferred to the jurisdiction of the Attorney General. It should cease to be a regulatory body. Its function should be to investigate and prosecute those who breach the Banking Act, the Companies Act, and those Financial Services Corporations and entities that breach any relevant law. The FSA should join the ranks of those involved in combatinfg serious economic crime.

    Regulation of banks and financial institutions should be in the hands of the Bank of England.

    A legal change is necessary as well. We need a Glass-Seagall Act and it should be made absolutely clear in that Act that deposits with investment banks are not protected in any way. Let those who wish to give their money to banks to gamble with, do so, but they must not yelp when they are smacked with a boomerang. Only deposits with commercial banks should be protected but commercial banks should be very strictly regulated.

    Lastly, there should be horrendous penalties for breach of any legislation policed and prosecuted by the FSA.

    These changes would leave the FSA with nothing to do but investigate and prosecute villains, and we may at last see some action taken against the people who destroyed our economy.

  • Comment number 49.

    What would make me have some respect for George Osborne is if he were to do something very simple, namely, ask Mervyn King what powers he wanted, to control the mindless lending and trading practices of the banks. And then tell everyone, if the Tories came to power they would be GIVEN to him!

    I mean George may have an idea of how to be a lion tamer, but if he had any sense he would leave such a task to someone who did?

    However, if Government (over)borrowing became an issue who should be blamed for allowing it?

  • Comment number 50.

    #29 windchrisleeds
    Yes, it's been mentioned before, including by me.
    Post 40 Mrsbloggs123 on Robert's previous blogcalled for business stories.
    Paul Mason's & Nick Robinson's blogs are often far more informative about business than the Banking Editor's.
    Reading Nick Robinson's "Mervyn's done it again" blog and bloggers comments today made my little brain cells quite depressed.

  • Comment number 51.


    The irony of Soddy's five prescriptions is that he advocated the abolition, in his first prescription, of the ONLY thing that prevents banks from creating money, and thus makes his fifth prescription impossible to achieve. Without a gold standard there is NO WAY of preventing banks from creating money. So, he may not have been a crank, but he was a shallow thinker.

  • Comment number 52.

    And I believe that the BOE should establish a "national economic committee", or some such thing.
    Made up of real businees people and real industrialists....not just academics or financiers, with regulatory powers over the finance industry.
    And the best and most sensible brains....people like Vince Cable and Jeff Randall (people with real foresight) as well as those bankers who foresaw big problems. (there were quite a few of them).
    Over the last 10 years, we have had a graphic demonstration of what happens when a country is governed by fools, (academics with insufficient industrial or business experience).
    Broken banks. The real national debt trebled. Pensions ruined. Big trouble for all.
    We need the best brains to assist the Bank of England, and you won't find them in the ranks of New Labour.

  • Comment number 53.


    We got Lloyds Banking Group because Lloyds TSB had a board that was run by people apparently with an eye for a loser; had large shareholders in both camps who thought it would be a good ruse to save their HBOS bacon by voting in both banks merger ballots, thereby losing almost everything for their pension holders; a Government that had set up the conditions in the boom years where HBOS, RBS, Northern Rock and the rest of the financial wannabes turned into members of Toxic City; and a media that now talks with authority about what went wrong but said nothing in the run up to the disaster. Finally, the analysts, who lived up to their name. Check on how many buy recommendations there were for HBOS in 2006 and 2007 - similarly for the other state-owned banks.

    The Government should separate out HBOS back into 100% state control as it was their fault that it went bust, and restore Lloyds TSB to the dull old prudent bank it was before the main antagonists got together and dreamt up the Rotten Deal of the Century.

    Oh, and I forgot the Blank of England - easy as they were asleep at the wheel while all this was going on.

  • Comment number 54.

  • Comment number 55.


    You are quite wrong. The BoE DID see it coming. That is why in the year before the collapse its pension fund withdrew every penny from the stock market and held cash and bonds only. But what were they to do? They saw the rabbit in the headlights of the car. Were they to scream at it to move or to be ridden over? When Robert told the truth about Northern Rock he was pilloried for 'causing' the disaster. Heaven knows what would have happened to the Governor if he had shouted FIRE! It may have caused worse mayhem than actually eventuated. There are some occasions on which people are powerless to act even if they know disaster lies in the way. The Governor had, after all, been stripped of all responsibility in the matter.

  • Comment number 56.


    Not really. What Soddy objected to was not that money itself could be created (i.e. de-coupled from Gold backing), but that the ability to do it should be ONLY by the Gvt, not the banks. If the Gvt wants to go mad and create lots of paper money itself, so be it, but to have this power gifted to the private sector is little more than treason. Banks are in the unenviable position of being able to make money from money, something that has troubled many emminent people in the past (e.g. Aristotle).

    Neither the Gvt, Treasury or BoE are actually in control of the amount of money in circulation - it's the banks that can make & destroy money at will. And we can't vote them out if we don't like what they're doing! Post #19 hits the nail on the head.

  • Comment number 57.

    Gordon Browns' statement this week that he didn't know much about banks buying up US subprime debt (when he was chancellor) is really extraordinary.
    That is a situation that must never happen again.
    Full disclosure of what the banks are doing should be part of the regulators work.

  • Comment number 58.

    After what Paris Hilton has reportedly said about Cristiano Ronaldo you may wish to revise "The Ronaldos of Risk Assessment" bit in your piece.

  • Comment number 59.

    #39 writingsonthewall

    Just about the best observation on the present situation I have seen.

    writingsonthewall is right, we havnt seen half of it yet. Companies are hanging in and god help us when they realise the market isnt coming back anytime soon and they have no resource left !

    The writer does also make the comment "I prepared myself" ? If Gordie keeps printing money and inflation soars, in the usual, banana republic style, then assets will start to deminish faster than Politicians credibility. The only pensions worth having will be a politicians ring fenced, gold plated, inflation proofed pot !

  • Comment number 60.


    You are right on most counts, but what is happening to our economy, and therefore the stock market, is no different to what has happened in previous recessions except this one will almost certainly be deeper and longer.

    I am not at all surprised that firms like Currys and Comet are struggling. Discretionary items like electricals always take the biggest hit. Similarly with Nike and sportswear. Corus is the worst, but then cars and other products using steel are on the rack so that is no surprise. The Lindsey Oil situation is about jobs for foreign workers, and could have happened at any time. Unempoyment just exacerbates the situation. As you say, the rip off from energy suppliers has been going on for donkeys years.

    For my part we have to come back to the argument between trying to spend our way out of trouble (in my view doomed) and Tory overt and Labour covert cuts in public spending. If we dont cut, and rigorously, we will perpetuate the downward spiral for our children and grandchildren. £40bn a year just on interest payments is a killer. Assuming they cut it will all get better - it always does - but the most frightening thing for me is to look at our local high street (in a relatively affluent Surrey town). 19 shops out of around 50 have closed and will probably never reopen. That is a lot of entrepeneurs who have had their fingers burned, but perhaps it has to happen if e-trading is to become the dominant way of shopping a lot of people expect.

    Incidentally, in the last recession Marks traded at around 1.30. This time round they have stayed pretty firm at around 3.00. They are a good bell-weather, even if they did touch 7.00 when people thought shares could only go up. Luckily for you, it sounds as if you were not in that camp.

  • Comment number 61.

    its time to give the old lady of threadneedle street a brick to place in her handbag.
    a wise course of action unthought of by other control freaks running this country.

  • Comment number 62.

    I was always under the impression that the Bank of England had the means of controlling spurious lenders, I soon found out that was not the case, they merely licenced them. I also found out that the FSA was set up with specific terms of reference that did not precede 1996 pity that. I found out that the Police are interested in fraud, just not corporate fraud, The Banking ombudsman had no teeth nor the council of mortgage lenders. The moral of this story is that the Banks have a licence to fleece you, rob the state blind and the taxpayer pays. What further power does the Bank of England want? One day I would like compensation for my house but it seems you have to pay for it through the legal system. We have seen our banking system collapse, the cowardice and rapacity of the political system. Do people actually think this is going to change?

  • Comment number 63.

    if a bank can not be threatened with closure perhaps the management should be?

  • Comment number 64.

    There are other options.
    1. Parliament might pass a law to reintroduce a Doctrine of Usury...Good Queen Bess' Usury Law of 1571 is a good place to start.
    2. The Privy Council might recommend to Her Majesty the Queen that she command her Lords Spiritual and Temporal to establish Church and Royal Mints to meet the needs of her subjects.
    3. The Bank of England, the Commercial Banks and Private Exchanges might be set free from public scrutiny to compete with Usury Free Banks provided, as of right, to Her Majesty's subjects.

  • Comment number 65.

    It looks like the government is opting to beef up the regulatory powers of their puppet regulator; the FSA, at the expense of the Bank of England - which continues to be marginalised by the Scots cabinet and their pro-EU collaborators.
    I find myself wishing that S&P and the other credit rating agencies would downgrade British government debt to junk-bond status to prevent this profligate Labour government from bankrupting us. The Weimar republic in the 1930's wasn't really the place to be.
    Perhaps it's all part of Mandelson's plan to get us into the Eurozone. It sounds like paranoia, but in the words of Conan Doyle/Sherlock Holmes, when you eliminate the impossible, whatever remains; however improbable, is the truth.


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