The FSA and bank reserves


The Financial Service Authority's new rules on bank reserves is bad news for business and mortgage borrowers

The Financial Services Authority is a menace, it really is. One reason we had a crash is that the FSA was more interested in how quickly banks picked up the phone to customers than whether their fundamental business model was sound. Then it decided that 'stronger' regulation was needed and that it should have more powers and more staff – at the banks' expense, of course (an approach criticised in a recent ASI report)

Now it says that the banks should keep more cash in their reserves, to make them stronger so they don't collapse again. What it means, of course, is that they should keep more government bonds in their vaults. Which is nice for the government, who will at least get someone to buy its rubbish IOUs. But it's bad for the banks, who will have to spend an extra £6bn doing so.

And that means another £6bn that won't be coming to customers in loans and mortgages, but which will be hitting them in additional charges. So in one stroke, the FSA has added to the problems of householders and businesses, who currently can't get loans, and for every other bank customer, who will now pay more for their banking. Just what you need in a recession, isn't it?

Dr Butler's book The Rotten State of Britain is now in paperback.