In a world of rising energy bills, polluted rivers, labor shortages, falling levels of business investment, strikes and underfunded health services, give thanks for small mercies. At least we don’t worry about the banks going bankrupt.
This assumption was not necessarily a safe one when Covid hit in early 2020. The share prices of companies such as Lloyds Banking Group and NatWest fell by half almost overnight.
That they have regained all the lost ground can be explained by several factors: the huge sums spent by the government on furlough schemes, payback loans and so on; the fact that unemployment, one of the traditional drivers of loan write-offs, remains low; and higher interest rates, which help banks’ lending margins.
But perhaps there is another factor behind it. Perhaps the Prudential Regulation Authority (PRA), the part of the Bank of England responsible for monitoring the health of the financial system, has done a halfway decent job.
It’s still early, of course. But on the other side of the recession, the banking system should be infinitely better equipped to finance the recovery than it was in 2008-09 when Northern Rock, HBOS, Royal Bank of Scotland fell like dominoes.
The PRA was created out of this crisis. The failed Financial Services Authority and its light regime were disbanded in 2013 under George Osborne’s reforms. Large-scale regulation of the biggest banks and insurers was handed back to a reinvigorated Threadneedle Street. The Financial Conduct Authority (FCA) was created to do the rest of the work of the old FSA – regulating markets, controlling behaviour, looking after consumers and supervising smaller financial firms.
One can still point to shocking flaws, of course. Exhibit A will be the FCA’s oversight of London Capital & Finance, where the regulator was asleep at the wheel while savers, lured by promises of fat but sure returns, lost their shirts.
Then there was the FCA investigation into the gouging of small and medium-sized businesses by RBS’s GRG division in 2008-13; it read like an exercise in money passing. But the financial architecture itself – the division of responsibilities between the PRA and the FCA – still looks robust. No one would certainly want to recreate the uncomplained FSA.
Well, one person, it seems. The FT reports that Liz Truss, the Tory leader, has a plan to merge the FCA and PRA, bringing the much smaller payment systems regulator (already part of the FCA) into the mix. That sounds like a very bad idea.
Sign up for Business Today
Get ready for the day – every morning we’ll direct you to all the business news and analysis you need
Privacy Notice: Newsletters may contain information about charities, online advertisements and content funded by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to secure our website and Google’s Privacy Policy and Terms of Service apply.
What problem is it trying to solve? As always with the Tory leadership show, details around the wilder ideas are scarce. This appears to owe something to Truss’ reported desire to wage a “war on the technocrats” or cut the Bank of England down to size.
Or maybe she just doesn’t like Andrew Bailey, the governor, or Nikhil Rathi, chief executive of the FCA, both of whom seem wary of the risks of attaching a “growth” or “competitiveness” mandate to the work of financial regulation.
If Truss has serious arguments, let’s hear them. But another round of institutional upheaval in financial regulation sounds like a futile revolution. Improvements are always possible, but unlike in 2008, the basic setup hasn’t clearly failed.
Messing with the PRA would be particularly pointless. It is the only body capable of standing up to self-serving bankers when they scream, as in the temporary ban on dividend payments to shareholders in the early months of Covid, that regulators are making their shares “uninvestable”.
A prudential regulator must be reasonable. The pressure from boardrooms and politicians to go to a ‘competitive’ pace caused half the problems with the old FSA.
The cost of living crisis this winter is clearly the top priority for a future Prime Minister – then she can choose any of the other huge challenges to the UK economy listed above. Reorganization of financial regulatory authorities should not be on the list.
Not just another story
Note a detail in the story of the American student who made $110 million in one month by buying shares of Bed Bath & Beyond, an ailing American home goods retailer cast as a “meme” stock: the stock price fell 25 % soon after he sold.
Jake Freeman bought at $5.50 in July, so he would still have made a lot of decent money if he had gone out at $19 on Thursday, rather at the reported level of around $27 on Tuesday. He was either brilliant or lucky with his timing.
The other important detail is that he started with a $25 million stake provided by “friends and family.” Not everyone has access to such sums for a death blow or fame.
Add Comment