Sunday, May 02, 2010

Gordon Brown warned on banking collapse in 1997

Gordon Brown was warned that the changes to the banking system he was bringing in, in particular removing the role of bank regulator from the Bank of England and putting it into the hands of the FSA would lead to a systemic banking failure.

When discussing the bill that passed the changes to the banking system the Conservative Shadow Chancellor, Peter Lilley said:
With the removal of banking control to the Financial Services Authority--the "super-SIB"--it is difficult to see how and whether the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.
And further:
We have no objection to the objective of trying to bring greater simplicity and one-stop shopping to the business of financial regulation, but we fear that the Government may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day. We shall observe closely what is going on in the development of the proposed legislation.
You can read the whole section of the debate here (several pages), the quotes were drawn from here.

Now that Gordon Brown has admitted some liability for the banking collapse it is interesting to see Labour spinners, and indeed Gordon Brown lying about how the banks were run before his disastrous changes. They allege that the banks were self regulated before Labour came into power. This is, of course wrong. Barclay's did not regulate Barclay's, nor did Lloyd's regulate Lloyd's, the Bank of England supervised them all, keeping a close eye on balance sheets and risk which as we know is a movable feast. Previously they had taken failing banks over and had them restructured in a weekend.

You can read more articles on the Bank of England here.

I would seriously recommend reading the whole debate. Robert Chote gets quoted quite a lot!

1 comment:

Frugal Dougal said...

Wow - this is explosive! Thank you!