Byline: Anthony Hilton
[bar] HE Government is slowly moving towards giving the Financial Stability Board the tools that will help it act against future excesses in the banking system by, for example, increasing the capital banks have to put up when the business they are doing is thought to be getting too risky.
New Treasury Minister Greg Clark announced some moves in this direction only this week. But he did so against a background of disquiet and growing scepticism among regulators and others that the huge regulatory reform currently under way will actually deliver a safer system.
There are doubts lucidly expressed by the Bank of England's Andrew Haldane that the more complex a regulatory tool becomes, the less effective it seem to be in providing an accurate picture of what is going on. There is also concern that putting more powerful brakes on a car does not stop accidents; it simply makes people drive faster. When the mood takes them, bankers will drive to the limit wherever that limit is set.
But it is not totally hopeless. Elsewhere in the system, the Financial Services Authority has published a paper on proposed reforms to the financial compensation scheme -- the fund which steps in to compensate individual holders of financial products which have failed and where the seller is no longer around to provide redress.
The key issue is whether the fund should move away from a mutual system, where the whole industry gets involved in big claims, to a silo system, where only brokers pay for the problems caused by brokers, or financial advisers for the problems caused by other financial advisers. The current system starts on that premise but the industry as a whole has to cough up where large claims have exhausted the resources of an individual sector. …