The more things change...

21 July 2009

World War II depleted our country so badly that the Empire became unsustainable but after eight years of Gordon Brown as chancellor and two years as Prime Minister, Great Britain can’t even afford eight more helicopters for a marginal conflict in Afghanistan.

What’s more, the banks aren’t in a position to finance them either. The days of bankers bailing out governments have long since gone and, even if they could the Financial Services Authority wouldn’t let them.

It’s one of life’s ironies that the FSA is making it difficult for even time-tested institutions like building societies to lend to homebuyers while the government has been dishing out billions to rescue some of the big banks which the Lib Dems have suggested, should be split up and down sized before they are returned to the private sector.

As the governor of the Bank of England pithily remarked, “If a bank is too big to fail, it is too big”. That wise counsel came too late for Gordon Brown who foolishly facilitated Lloyds TSB’s acquisition of HBOS, despite the competition issues but let’s be fair, when you’re saving the world it can be difficult to get things right closer to home.

Now with just months before a general election, Brown, who suffers from congenital omnipotence disorder anyhow, won’t admit that his tripartite authority structure failed the stress test, as did the FSA itself.

So instead of focusing on turning the economy around, time and money is being expended on tinkering with a system and mind set that have their DNA rooted in the Kremlin rather than a free market economy.

So should we be excited that this week the shadow chancellor, George Osborne, has committed the Tories to abolishing the FSA should it win the next general election?

Under his proposals the Bank will be responsible for financial regulation and the FSA’s consumer watchdog role will be subsumed into a new Consumer Protection Agency that will bring together the consumer powers currently split between the FSA and the Office of Fair Trading.

So far so good but the bad news (buried in the 50-page white paper Plan for Better Banking) is that financial institutions will have to pay more for the proposed new regime. Osborne wants to attract the best minds into the CPA and the Bank’s new Financial Regulation Division, although it’s a safe bet that most of the bureaucrats comfortably ensconced in the FSA will simply change job titles and move across to either the FRD or the CPA.

It’s sad but in places the white paper reads like a command economy document.

Witness: “We will give the CPA a mandate to act as a genuine consumer champion – looking at pricing and product suitability as well as competition in financial services and products. Under the CPA consumer protection will not simply mean following rules. Consumer regulation, like prudential regulation, requires regulatory judgements.”

Pricing should be a function of free-market competition but Osborne is as patronising as the best of the left when it comes to the wisdom of the ordinary people. Thus the document states: “Equally the proliferation of choice in some instances has limited consumers’ abilities to make effective comparisons. These are complicated issues and in order to properly protect consumer interests the CPA will be a far more consumer-orientated, transparent and focused body than the FSA.”

And ominously: “The CPA will also have to work closely with the Financial Ombudsman’s Service. The FOS plays an important role in consumer protection as it provides a further means of resolution where a consumer has exhausted a firm’s complaints’ procedure.”

But at least the Tories would seem to be addressing the monopoly issue created by the current crisis and the botched rescues: “Between them, RBS, Lloyds Banking Group and Barclays hold 77% of UK deposits and 40% of UK mortgages”, the white paper observes, adding that we “need to consider the implications of a market dominated by a few ‘super-banks’ from a consumer and competition perspective”.

Apparently they will be looking to introduce greater diversity into the UK banking sector and, if elected, will review whether or nor legislative or regulatory reforms will be needed to achieve that end. Perhaps they should re-read their own white paper and start thinking again?