Hector Sants, head of the Financial Services Authority, was our guest at a Power Lunch in Westminster on Monday. I can’t relay the discussion to you because it was off the record (and I love to think that a stray word about such an encounter might send the markets spinning up or down, but in reality I know it won’t).
Mr Sants is on the way out already, but if George Osborne has his way, many of his colleagues will be following, apart from the few who will be bussed to Threadneedle Street to help the Bank of England take back the role of regulating the banks. In the Osborne plan, the FSA will become simply a consumer financial protection agency, rather than the financial-markets regulator.
I’m not sure about this move, and neither are the banks. Sure, banking regulation must be returned to the Bank of England. The Bank at least knows something about the state of the markets – it can see who is coming in to borrow money, for example – while the mega-quango in Docklands that Gordon Brown created, obsessed with its checklists, plainly never had a clue that the banks were about to run out of money and precipitate a global financial crisis.
But a financial consumer protection agency, particularly one rising out of the FSA’s ashes, could create real problems too. Freed at last of any responsibility for keeping the banks financially sound, all its time, energy, staff and considerable dollops of taxpayer cash would be focused on trying to get a ‘better deal’ for bank customers. Regardless of whether its proposals destroyed the incentives on customers to be careful about their borrowing, or of banks to provide sound lending. It would just become a sugar-daddy, enjoying favourable press for proposals like maximum (and probably equal) interest rates on credit cards, for example, regardless of whether this meant responsible borrowers subsidising irresponsible ones, or whether it made the entire credit card business unecoomic for the providers.