Regulatory developments as the Bank takes control
The Bank of England Governor tonight confirmed that Hector Sants, the chief executive of the Financial Services Authority, has been persuaded to stay in office.
“I am absolutely delighted that Hector Sants has agreed to remain at the FSA and then move to the Bank to become the first chief executive of the new prudential regulator,” Mervyn King told his audience of bankers at the Mansion House.
Sants will run the rump of the FSA from within the Bank of England after a transition period. This is a major coup for George Osborne. Hector Sants announced his resignation in February, amid electoral uncertainty about his organisation’s future. This entity will have day to day management of the regulation of individual banks.
There will be a separate Financial Policy Committee, also within the Bank, that will make big picture judgements about the amount of credit swishing around the economy, imbalances in the economy and the global economy. If the FPC spots a problem, then the Bank of England’s new unit, run by Sants, would have as yet unspecified powers to rein in lending by the banks.
King suggests that such a system could have seen a “progressive tightening in capital standards that would have reined in the near-tripling of UK balance sheets between 2002 and 2007” and help prevent the UK banking crisis.
The Governor believes that the new powers will allow the Bank of England not just to “take the punch bowl away as the party gets going” but also to “turn down the music when the dancing gets too wild”.
In another important development, Mervyn King gave a clear indication that when the Bank of England will raise interest rates before selling back the government bonds it has bought as part of the Quantitative Easing programme. It was a clear hint that the Bank is actively thinking about raising rates.
In his Mansion House speech George Osborne said: “the Financial Services Authority will cease to exist in its current form”.
He announced that former Barclays chief Martin Taylor, regulator Claire Spottiswoode, FT commentator Martin Wolf and investment banker Bill Winters will serve alongside Sir John Vickers on the UK Banking Commission, that will decide whether high street banking should be separated from investment banking.