Darling to shake up bank regulation

In a bid to avoid a repeat of the Northern Rock collapse, Alistair Darling has said he will hand the Financial Services Authority (FSA) greater powers to intervene if another bank runs into trouble.

 

The chancellor told Friday's Financial Times that new legislation will allow the FSA to seize and protect customers' cash if their bank gets into difficulty.

 

It is hoped the new legislation will increase customer confidence, avoiding another run on the bank like that seen at Northern Rock branches in September.

 

"I want to make sure our own legislation is up to the mark in dealing with problems when they arise in future," Darling said.

 

He said the new legislation will address "gaps in the law" and will include giving the FSA and Bank of England greater powers to get information from banks about their finances.

 

Darling said he will outline a clear guarantee scheme so depositors know how much of their money is protected but also will make sure they can withdraw their cash quickly.

 

The government has been looking at systems in America, Canada and Belgium where regulators can appoint someone to help if "trigger points" are reached when an institution is in trouble and needs support, the chancellor said.

 

"The trigger points that I have in mind is that once a bank is in financial difficulties, once a bank is using lender of last resort facilities, people know what the rules of the game are at that point," he explained.

 

"You have to be very clear to the people not just in this country but across the world. They need to know what the rules are. It needs to be clearly defined."

 

'Confusion'

 

Responding, shadow chancellor George Osborne said that "it's good news that the chancellor now accepts that the supervision regime set up by Gordon Brown 10 years ago failed its first test and needs changing."

 

However he added that: "Unfortunately his interview today raises more questions than it answers and adds to the confusion.

 

"It's not clear who is in charge if there is another liquidity crisis: The role of the Bank of England hardly gets a mention.

 

"It's not clear how creating a new cabinet committee will end the dithering that has been so damaging.

 

"It's not clear why he has briefed his proposals to a newspaper when he said he was going to consult with the banking industry and await the Treasury select committee's report.

 

"The only thing that is clear is that this chancellor does not enjoy the confidence of the industry or the public to handle a future crisis."

 

'Missing'

 

Liberal Democrat Treasury spokesman Vince Cable added that: "This is the loud slamming of stable doors after the horse has bolted.

 

"It is obviously sensible for the government to think carefully about how to avoid future runs on banks, but it still hasn't found a satisfactory solution to the Northern Rock problem.

 

"What is missing from the government's approach is some indication that it understands the need to prevent our liberalised banking system from repeatedly running into the same problems as Northern Rock.

 

"This means, for example, having capital adequacy requirements which reflect the state of the economic cycle, to prevent the wild booms and busts in lending that we have seen in the property market.

 

"If the government is to get into the business of offering whole guarantees for the banking system it also needs to consider how more responsible behaviour can be ensured along the lines sketched out seven years ago in the Cruikshank report.

 

"Like so many other reports that Gordon Brown commissioned, he studiously ignored those recommendations that didn't fit his preconceived ideas."