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For some values of “interesting”

October 8, 2012

Ooh, this is interesting.  Well, for some values of “interesting”, obviously!

It’s not an HMRC consultation but a Treasury one, on the Financial Services Bill: the Financial Policy Committee’s macro-prudential tools.  And the good news is, it’s open till December, so you have plenty of time to read and respond…

Yes, well.

Assuming you ARE interested, it’s about the bank crisis and how the “tripartite” regulatory system didn’t actually have anyone whose responsibility was to look at the way the system itself worked – so all the bits could function reasonably well and meet all their regulatory requirements, but the whole thing fall apart.  As if we’d checked the wheels were turning and the tyres at the right pressure, the brakes fully operational and the driver sober, but no-one was in charge of spotting there was no steering wheel and isn’t that a cliff up ahead???  “Macro-prudential” seems to be a poncey way of saying “in charge of the system as a whole”, as well as signalling “don’t bother your pretty little heads about it, plebs: we only want to hear from, you know, People Like Us.”

Also, let’s be clear, there’s already a “macro-prudential” regulatory body in the US (The Financial Stability Oversight Council aka the FSOC) and the EU has set up the European Systemic Risk Board (ESRB) to identify macro-prudential risk in the EU and then to warn the individual member states who are responsible for, er, doing something about the warnings.

With me so far?  Right, then – what are we going to do over here? Well, it seems, we’re going to have a subsidiary of the Bank of England with power to look at the financial system as a whole and ensure financial stability in the light of the government’s economic objectives (at present, for “growth and employment”)

Incidentally I was a bit gobsmacked by 3.12 of the document:

3.12 In addition to the new secondary objective, the Financial Services Bill already prohibits the FPC from taking any action that it believes would be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term.

Wait just a cotton-picking minute: you can’t save the economy if it would have an adverse effect on the banks’ position in society?  Can we not envisage financial circumstances so dire that the best thing for the country – yes, the country; it’s a nation state made up of citizens, not a plc – would be for the banks to play a less prominent role.  For some of them to go to the wall and finance to be provided direct by government or by some other structure like cooperatives or credit unions or something brilliant that no-one’s invented yet.  Do we really want to hard-wire the banks into primacy?  Like I said, a bit gobsmacking!  When did that one slide on through?

My response is a bit long, and my response to the impact assessment is even longer, so I’ve split it between three posts.  Watch this space for parts two and three!  (Well, somebody must find it interesting.  Somewhere.  Anyone?  Bueller??)

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