Osborne says reforms would have eased banking crisis

Planned reforms to UK banking regulation would have eased the impact of the global financial crisis, Chancellor George Osborne has said.

The proposed overhaul will give the Bank of England the key role in regulating the sector.

And this would allow regulators to take a broader view of UK banking, Mr Osborne told the BBC.

Such oversight would have seen RBS's disastrous takeover of ABN Amro more closely scrutinised, he added.

"While this was going on, there was nobody looking at the big picture of whether this was a good idea," Mr Osborne told BBC Radio 4's Today programme.

"A central bank [as a regulator] has the capacity and authority to do that."

Asked whether his regime would have left Britain less exposed to the last banking crisis, he said it would have done.

"There would have been someone in the system looking at the overall levels of debt that were rising very rapidly in the middle part of the last decade," the chancellor said.

In his first Mansion House speech to the City of London on Wednesday night, Mr Osborne confirmed that the Financial Services Authority (FSA) would "cease to exist in its current form".

The parts that are supposed to protect consumers and crack down on crime will be injected respectively into a new Consumer Protection Agency and an Economic Crime Agency.

Mr Osborne said the government would also create a powerful new Financial Policy Committee at the Bank of England.

He added he was confident that the transition to the new authority would work - especially as FSA chief executive Hector Sants had agreed to stay on and oversee the transition, having previously said he would be leaving.

Mr Sants will then head the new "prudential regulator" charged with regulating banks and other financial institutions.

The process of reforming the regulatory system is due to be completed by 2012.

FSA chairman Adair Turner told the BBC that the changes would help to address the lack of co-ordination in the existing tripartite system - which sees the FSA, the Bank of England and the Treasury play different regulatory roles.

"The overall philosophy across the world did not adequately recognise the importance of looking at the overall level of credit in the economy, how asset prices were going up, whether there was a credit bubble that was getting out of control," Lord Turner said.

"We were wrong, and to address that one needs a closer link between regulatory activity and central banking."

However, shadow chancellor Alistair Darling said that the failure of the old system was because of individuals and not the structure.

"What is the most important thing is the judgement and the skills of regulators," he told the BBC.

"In our country, in America, in Europe, we simply didn't see the problems building up, the inter-connections between banks.

"So for example when Northern Rock got into difficulties, it got into difficulties because of the failure of the mortgage market in the United States and that happened within a matter of weeks.

"So you can change the architecture if you want, but you've got to make sure that you've got the right skills, the right judgements, because that's what makes the difference at the end of the day."

The biggest concern about the changes lay in the two-year period of transition to the new system, said BBC business editor Robert Peston, citing concerns that the FSA might not have its eye on the ball.

"That's profoundly worrying, given that we're seeing serious signs of strain in the financial system once again - with there being a genuine and worrying prospect of a second wave of banking disasters emanating from financially overstretched eurozone countries," our correspondent said.

However, persuading Mr Sants and Lord Turner to remain at the FSA for this period was "quite a coup", he added.

But he warned that Mr Osborne should expect criticism if another financial storm emerged and regulators were too preoccupied with the minutiae of the financial system overhaul to react properly.

Banks need to go back to providing a service rather than trying to sell customers everything under the sun when they walk through the doors. This would restore confidence in the banking system rather than making people think the banks are just after their money. Maybe the Bank of England will be able to implement this, which is where the FSA failed.

How much will it cost to move the employment of FSA staff back to the Bank of England where most of them came from in the first place? Is this really a sensible use of scarce financial resources just for some political dogma and point scoring?

The Banks need taking to task because they have gone back to what they were doing before the crash. How can they charge so much yet give so little to the savers? Also, with such a low interest rate, how is it possible that the credit card companies can have such high interest rates?

I welcome any change that gives stronger regulation to the financial system. However I question whether this move actually makes regulation any tighter, or if it's just a facade to pretend that it is.

The FSA failed completely. If the proposals go some way to preventing a repeat of 2009, then it is a good thing.

Failed Banks should pay for their own mistakes not the customers or general public. Systems of operation need to be devised by bankers. However independent agencies should be monitoring and regulating banks.

Let us remember the British financial crisis started here with the collapse of Northern Rock, a building society with an insane business model which did not and could not have existed under the regime prior to Gordon Brown's ill-conceived meddling. And its underlying cause was an economy based on cheap credit and ever rising levels of debt. What we now need is to change the government's culture of economic management, away from macro managing banks and back to providing a sound, sensible economic environment in which business and enterprise can thrive.

I know of late England does not want to use the word "Canada" in any of its thoughts, however they might find it much better to base their banking system on that of Canada. Canada came out of the recession much quicker than any country and it has excellent banking regulations.

The issue is not whether regulation resides in the ministry, the Bank or a separate agency. The issue is one of regulators recognizing signs of weakness - whether systemic or institutional - and having the gumption to take prompt & effective action.