Wednesday, 3 October 2007

Building a new system of financial regulation


There has been some discussion in the wake of the Northern Rock panic of the structure of UK banking supervision. Some commentators have suggested that bank supervision should go back to the Bank of England from FSA. Surely this is just the wrong conclusion: organisationally it makes sense for banks to be supervised by the same body as broker/dealers, insurers and others. No, rather the issue is why the Bank is responsible for financial stability. Surely that belongs with regulation at FSA. If the Treasury wanted to offer the Bank a sop, it could allow them to continue to run the window, but give FSA control in the event of a crisis over what collateral was eligible and how much liquidity to offer to the market.

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