Chancellor Alistair Darling has outlined plans for a new banking bill which will see the Bank of England (BoE) given powers for UK's financial stability along with added controls to the FSA.
Addressing the Lord Mayor’s Mansion House banquet last night, the Chancellor says the BoE will now have a formal legal responsibility for financial stability, alongside its existing role in monetary policy.
The new powers are in response to the Northern Rock disaster and the continued turmoil in credit markets.
Darling says the banking reform proposals will give additional responsibility for both the FSA and BoE, while improving co-ordination procedures between the two. The FSA remains the sole banking supervisor.
However, it emerged last night BoE deputy governor Sir John Gieve is to stand down. Gieve currently is in charge of maintaining financial market stability, but it seems a new person will be at the helm at the implementation of the new powers.
It is understood the BoE will introduce a new Financial Stability Committee, giving guidance on the new responsibilities.
“Our macroeconomic framework is facing its toughest test in a decade. But we will come through it with renewed confidence,” the Chancellor says.
“These (measures) will reduce the likelihood of failure, lessen the impact if it happens and ensure that savers are properly protected.
“The challenge for us is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions.”
Darling also says the Government will bring forward legislation providing the FSA with additional powers to tackle market abuse.
Speaking at the same event, BoE governor Mervyn King says the UK currently faces its “most difficult economic challenge” for two decades.
He welcomed the new responsibility for financial stability and associated reforms to BoE governance.
“We now have the chance to put in place a set of reforms that provide a coherent framework for banking regulation,” he says. “It is an opportunity we must not throw away.”
The IMA applauded the Chancellor’s proposals, urging him to implement them quickly to recover industry confidence.
“The Government’s objective is to ensure bank failures do not threaten the system, not to ensure that banks do not fail,” IMA chief executive Richard Saunders says.
“The proposed regime will give customers confidence that their deposits and assets will remain safe in the event of a bank going out of business.”
Darling says he will set out full details of the proposals today in a letter to the Treasury Select Committee chairman. He also plans to announce the successor to outgoing Bank of England deputy governor Rachel Lomax today, expected to be current chief economist Charlie Bean.IFAonline
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