According to the Treasury Select Committee (TSC), the Chancellor, rather than the Bank of England should bear the weight of responsibility when it comes to overseeing banks during a financial crisis. In a report published on Thursday in reference to regulation of financial institutions, the TSC said the Government must be in charge in times of crisis. It also warned that the Government’s plans to make changes quickly are too ambitious and mistakes will be made.
The report stated: “Since rescuing the financial system may have significant effects on public finances, only a democratically-elected Government should make such decisions.”
“The Government has said that it wishes the legislation to be introduced in “mid-2011″ and to be completed by 2012. The Committee is concerned about the risks involved in such an ambitious timetable.”
The TSC believes that one particular need before making changes is that the Government clarify what it considered to be “financial stability” when it comes to the Financial Policy Committee (FPC). Without the clarification there are expected mistakes to be made that will have untold results. The report stated: “The macro-prudential tools which the FPC is to use are as yet undefined and untested, and may have unexpected consequences.”
The report also called for the FPC to be made up of more external members. By including more external members it is believed that there will be a better balance of regulators and practitioners with input.
It is considered by MPs that the Government’s shift in power to the Consumer Protection and Markets Agency to be the overall protector of consumers should be scrapped. It is considered according to the report to be “inappropriate, confusing, and potentially dangerous”. Instead there should be a balance between risk, costs, and restrictions and not a direct all coverage agency that is so one sighted.
Andrew Tyrie, chairman of the TSC, said it was “regrettable that the consultation paper said so little about costs”. He added: “More work is needed to find ways to establish the true cost of regulation and the Committee will be pushing the new regulator to ensure this is done.”
The report also noted the lack of other UK financial sectors being addressed when it came to reforms. There seems to be too heavy of concentration on the banking sector. There are other parts of the financial sector that can contribute to a financial crisis and those should be addressed as well without concentrating just on the part that recently broke the system.
“Inappropriate regulation of non-banking sectors could cause serious and unintended damage to companies within those sectors and to the UK more widely,” the report says.
The Government will be going ahead with the spinoff consumer watchdog organization dubbed the Consumer Protection and Markets Authority. The group will be headed by Martin Wheatley. He will be returning to the UK from a five year leadership of the Hong Kong Securities and Futures Commission.
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