Cameron Vows to Scrap FSA and Increase Bank of England's Power; Tweaking the System Is Not Enough

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Byline: Sin Barry

DAVID CAMERON pledged yesterday to scrap the Financial Services Authority as part of a massive shake-up of banking regulation aimed at ensuring Britain's economic recovery.

The Tory leader said the tripartite system introduced by Gordon Brown was a "policy failure of historic proportions" that was directly to blame for the crisis facing the country.

He dismissed the Government's proposed reforms as inadequate measures that jeopardise recovery, promising instead to give sweeping new powers to the Bank of England.

Under Conservative proposals, it will regulate City pay structures, risk-taking and the size of financial institutions, with the FSA swallowed up into a new consumer protection body.

The Government plans to keep the "tripartite" system - involving the Bank, the FSA and the Treasury - but introduce an overseeing Council for Financial Stability.

Launching the reform plans, with Shadow Chancellor George Osborne, Mr Cameron said: "The decisions that led to this crisis represent a policy failure of historic proportions. We now need deep, wide-ranging reform that matches both the magnitude of the crisis and the scale of the hardship inflicted on the British people.

"That reform must be based on a clear understanding of what went wrong in the first place and a clear determination to put it right."

The debt crisis had been "at best ignored and at worst encouraged", he said.

"For this, I believe the finger of blame points directly at the system of financial regulation established by Gordon Brown in 1997.

"At its heart was the tripartite system; a system in which no-one was looking at the big picture, no-one had responsibility and authority to act and no-one was effectively in charge. So those bad debts, those risky loans, the soaring house prices, the systemic risk, the asset price bubble - they all fell between the cracks of the system.

"I'm afraid the Government's proposals that all we need are a few more tweaks and a little bureaucratic tinkering are totally inadequate and risk preventing a recovery."

The Tory plan involves: The scrapping of the tripartite system, with responsibility for maintaining financial stability handed to the Bank of England. The Bank would have a powerful new financial policy committee, which would work alongside the interest rate-setting Monetary Policy Committee and include the governor and deputy governor for financial stability, as well as independent external members; New powers for the Bank of England to regulate the pay structures, risk, complexity and size of financial institutions, including requirements on those which put financial stability at risk to hold large amounts of capital to act as insurance to protect the taxpayer; The abolition of the FSA and the combination of its consumer protection functions with parts of the Office for Fair Trading to create a new Consumer Protection Agency able to stand up for ordinary people on issues like bank charges and excessive interest rates; A new senior post within the Treasury for a minister with responsibility for European finan-ciaregulation, who would spend much of his or her time in Brussels fighting Britain's corner and defending the interests of the City of London and; a new competition investigation by the OFT and Competition Commission into the effect of mergers within the banking industry, particularly last year's creation of the giant Lloyds Group from Lloyds TSB and HBOS. …