Bank Regulation

Many parliamentary committees have been critical of government policy - or perhaps non-policy would be a better description - on the matter of the financial collapse and controlling the banks. However, some of the criticisms of the way that the FSA has done its job seem incredible. The Scottish Affairs Select Committee complain that the FSA did nothing to inform the management of the recently demised Dunfermline Building Society that their business model had fundamental weaknesses. In addition, it was noted that the building society had been kept in the dark about the criteria that it had to meet to ensure its independence. I cannot believe this. It is essential that the FSA knows what is going on in the financial world and looks carefully at any institution that starts to do something novel. But the management of any bank or building society is down to its senior executives and if they do not understand what they are doing even when it is fundamentally crackers, we have to wonder how they got their jobs in the first place. But the board did not tell any of the society's members about its high risk commercial lending - outside its established business model - nor about a disastrous loss of £9.5m on a computer system. I agree that the FSA should have known about these matters and should have - in private - come down on them like a ton of bricks before things got out of hand but running the bank is the responsibility still of its executives. How many more institutions are heading for the rocks under the control of incompetent management and with toxic rubbish hidden behind the balance sheet?

On another front, the Treasury Select Committee has been equally scathing in their attack on the government's recent white paper on bank regulation. Apparently, the Governor of the Bank of England was not consulted during the preparation of this document. Now, I would consider that unbelievable although, in mitigation, since the document says absolutely nothing, it probably was not worth wasting the governor's time in reading 176 pages of waffle.

Give somebody a bonus; that should sort things out.

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