If the Conservatives get in, its goodbye to the FSA

July 21st, 2009 by tom | Filed under Daily News, Global Credit Crisis, Recession, UK Banks, Uncategorized.

government

Based on the assumption that a new broom will always sweep clean, and the UK financial system is certainly in need of a very large broom, comes the announcement from Shadow Chancellor” George Osborne, who is also active as financial spokesman for the Conservative Party, that the first steps that they would take if and probably when the Conservatives get into power is to dismantle Britain’s system of financial regulation that proved to be highly unsuccessful and return power to the Bank of England, which they claim would avoid a repeat of the current banking crisis.

The Financial Services Authority was established only ten years ago by Gordon Brown when he was UK Chancellor of the Exchequer to act as supervisory role in handling the affairs of the major banks, building societies as well as other major UK financial institutions. It would be a brave man indeed who would say that the FSA covered them in glory during this period, and it would be understandable that David Cameron and George Osborne would like to see the Authority dispatched to the history books.

What Cameron and Osborne would like to see is a return to overall authority of the UK financial system by the "old lady of Threadneedle Street" otherwise known as the Bank of England? Bank Governor, Mervin King is reportedly acting a little coy on the suggestion, but the general impression is that he would be as pleased as anyone to see the FSA disappear of into the sunset.

According to a brief manifesto presented by Messrs. Cameron and Osborne at a Press Conference on Sunday, in addition to the BOE, a Consumer Protection Agency would be formed with the role of handling some of the day to day problems in establishing the new framework.

The Conservatives hope that a new and more powerful central bank would be more capable of monitoring the health of the financial system, as well as setting capital requirements and leverage limits for the banks, and prevent the risk taking, profit hunting and bonus scalping policies of the past that brought the UK banking system to its knees. Only time will tell.