The Treasury Committee has published its last report on the banking crisis today, and it isn’t exactly diplomatic in its choice of words to describe the FSA’s failing and what needs to be done to prevent such a crisis from happening again.
The report says that the FSA failed ‘dreadfully’ in its banking supervision in the run-up to the crisis, and although there are apparent changes in the way it’s dealing with the market, the committee fears that these changes may just be a fad.
With that, they hit the nail on the head: it is to a certain extent quite fashionable now to talk about tighter regulation and letting banks not to grow too big. However, this rhetoric is rarely followed through with sufficient vigour. The Government, which is also heavily criticised in the report, should take the recommendations of the select committee to heart and act on them. They tie in nicely with our recommendations, so it’s well worth repeating them here:
– Separate retail and investment banking
– Ensure that no bank is too big to fail, or even too big to save
– Increase capital holding requirements for banks
– Don’t shy away from speaking out
The last point really must be emphasised. For too long, anyone who voiced criticism of the Finance-binge bonanza, be it a regulator, a banker, or a politician, was branded a spoil-sport and a doomsayer. I don’t want to excuse the FSA for its inactions and ineptitude, but even if it had taken a tougher stance, then it is quite likely that banking lobbyists and the Government would have told the regulators to back off. Hence the committee’s remark that the FSA must ‘develop the confidence to take unpopular decisions’ falls a bit short of the mark. The FSA must be given the authority and independence to be able to develop this confidence, to be able to be unpopular. Regulators aren’t there to make the banks all comfy. They are there to ensure the our money is safe. Let’s make sure that that’s not forgotten.