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Discussion and analysis of the latest economic issues.

By Sean O'Grady, Economics Editor of The Independent.

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Who does what and when?

Posted by Sean O'Grady
  • Thursday, 25 June 2009 at 12:11 pm
Anyone remember tag wrestling on the telly? Those of us of a certain age remember watching Giant Haystacks, Kendo Nagasaki, Big Daddy and Catweazle doing their theatrical stuff on a Saturday afternoon on World of Sport with commentary from Kent Walton. It reminds me, strange to say, of the current rows over bank regulation - who does what and when?

We are getting into a very unhealthily politicised situation. The caricature is of the Labour government and the Financial Services Authority on one side - Alistair Darling and Lord Turner. In the blue corner we find the Conservative opposition and the Bank of England - George Osborne and Mervyn King prancing about in their leotards. It is unfair, because few in the fight, with the possible exception of the Tories, see much advantage in using these arcane but important arguments for political advantage.

It is also unfair because there is so much common ground on what needs to be done. But there is a fundamental split nonetheless. The Bank wants to have the power to restrain a bank it thinks is getting too risky for its own good and the good of the system as a whole - and the taxpayer who might be expected to pick up the eventual giant bill for failure. The Tories agree. There is little sign of the government granting it those powers. The FSA says it is "agnostic" on the issue.

It all leaves the Bank, and Mr King, in an unenviable position, indeed an untenable one. The Bank has been given a legal responsibility to preserve financial stability but not the tools to do the job. It’s rather like sending out a gang of traffic wardens without their pads and ticket issuing machines, relying on them to nag motorists into submission to the law. Mr King is right; but how can he win this scrap?


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