The return of Coogan’s Bluff

26 January 2010 | By John Murray

It was a column that we were proud to run. It is rare to find a bureaucrat with a sense of humour, let alone express it in print with fluent but fatuous arguments to support positions he disagreed with on regulation, the economy, and the mortgage market.

Thus when there was a call for a return to good old fashioned banking, he made a great case for bringing back mortgage queues and all that was bad when the building societies enjoyed a monopoly of the market.

Sadly, this all came to an end as the credit crunch tightened its grip and Coogan felt that his column might be misunderstood. He was probably right but even so it was a sad moment for me, if not the industry.

But then, just last week, I received an email intelligence headed CML–What we like about the FSA. Gosh, I thought, Coogan’s Bluff has returned, and with a vengeance!

Basically the email highlighted the CML’s formal response to the Mortgage Market Review. “It will be comprehensive and thorough”, it promised, and while there were proposals with which it took issue, it largely agreed with the FSA’s diagnosis of the problems.

Oh yes, pull the other one, I thought with a grin, but there was more. “The FSA is now an intrusive, intensive regulator, which we welcome”, the document stated, and then drilling down to the specific, it added: “The FSA has introduced more rigorous approvals processes for senior management which again is welcome. But we do not want to see the most talented people choosing to leave the financial services sector to work in areas where there is less personal scrutiny.”

Could this last point be an ironic reference to the board of Northern Rock at the time of its fall? I wondered. Talent may be deterred from entering the sector but dodos will get jobs whatever the selection process. Sir Derek Wanless, for example, was a non-executive director of NR and chairman of its risk committee and yet he would have ticked all the right boxes with the FSA under its new intrusive regime.

Then it dawned on me–there was no irony intended. The CML seems to have found its comfort zone within the FSA framework and has, for instance, given up the struggle for a return to more innovative forms of mortgage funding and stated:

“The reality is of course that the market has, in any case, already changed irrevocably. “It simply cannot return to the funding environment or the irrational pricing and borrowing practices that we saw up to 2007. There has been a substantial shrinkage in the source of mortgage funding and the number of active firms in the market. This self-correction will not magically reverse itself simply because the economy improves at some point in the future.”

And apropos my reference to the comfort zone, the CML thought that there was a real risk that a new Conservative government would move the regulatory deckchairs and subsume the FSA’s functions in other regulatory bodies and it was not convinced that this was the right approach.

Nor to be sure, I noted, is Mervyn King, who as governor of the Bank of England stands to inherit the regulator’s mantel should the Tories come to power, and this started me thinking about George Osborne’s endorsement of Barack Obama’s proposals to restructure the big US banks so that they are no longer too big fail.

In last weekend’s Sunday Times our chancellor was quoted as saying that this wasn’t the answer.”You could end up dividing institutions and making them separate legal entities but that isn’t the point”, he said. “The point is the connectivity between them in relation to their financial transactions.”

I confess that it is outside my comfort zone to find myself agreeing with Alistair Darling but, no bluffing, on this issue I do.