MPs slam Darling over banking reforms

By SAM FLEMING FOR MAILONLINE
Updated:

 

The Treasury's landmark banking reforms came under fire in Parliament, amid fears the regulatory shambles that led to last year's Northern Rock fiasco is to get even worse.

Bank of England Governor Mervyn King before the Treasury select committee

Just like that: Mervyn King criticised the changes

Treasury Select Committee members accused Chancellor Alistair Darling of stitching together proposals that could exacerbate the 'muddle' that has clouded Britain's regulatory system for the past decade.

Bank of England governor Mervyn King joined the assault, criticising the Treasury's mooted regime for protecting depositor money and intervening in struggling lenders.

The government is attempting to recast the roles of the Bank, the Financial Services Authority and the Treasury to prevent a repeat of the botched Northern Rock rescue.

But yesterday Treasury minister Kitty Ussher faced claims that the new proposals are riddled with flaws.

For example, MPs and governor King questioned why high street banks are not being forced to stump up money in advance to fund a new system protecting depositors whose banks go bust.

This contrasts with the situation in the US, where the banking industry has built up a fund worth tens of billions of dollars.

MPs are also worried about the division of responsibility between the Bank and the FSA when lenders get into financial trouble, and the potential for panic inducing media leaks. MPs led by chairman John McFall said they were particularly baffled by the structure of a new Financial Stability Committee within the BoE.

This would supposedly hold Bank officials accountable for their management of the financial system, yet it would be chaired by governor King himself.

Ussher said this was a decision for the Bank, not the Treasury.

But McFall said: 'We have got to get financial stability right and we are not reassured.'

For his part, King said he wanted the Bank to be given greater powers to decide when to intervene in struggling banks.

As things stand the Treasury is proposing this 'trigger' should be the sole responsibility of the FSA.

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