LONDON (AP) — British Treasury chief George Osborne said Wednesday he would hand broad new powers to the country's central bank in a bid to avoid a repeat of the financial crisis that nearly brought Britain's banks to their knees.
In addition to keeping the British economy on a balanced footing, the Bank of England would now be responsible for keeping an eye on the health on individual banks, he said.
The reforms would effectively dissolve Britain’s three-point regulation system — comprising the central bank, the Financial Services Authority, and the Treasury — which had been set up by former British Prime Minister Gordon Brown, while Brown was Treasury chief in 1997. The FSA has long been criticized by Osborne and others for failing to foresee the near collapse of Britain’s banking system in the wake of the credit crunch.
"The tripartite system … failed spectacularly in its mission to ensure stability in the financial markets," Osborne told lawmakers in the House of Commons.
The Financial Services Authority is expected to be broken into three smaller units — one which retains responsibility for consumer protection, another responsible for fighting economic crime, and a third unit that would be integrated into the Bank of England.
Hector Sants, the FSA’s chief executive, is expected to remain at the organization’s helm before moving to the Bank of England, where he will become the chief executive of its bank oversight unit.
Osborne said he would offer more detail of the reorganization in a statement Thursday. The changes would have to be ratified by parliament.
"Unlike the last government, this government is prepared to confront the difficult challenges of the regulation and structure of the banks," Osborne said. "We are prepared to learn the lessons of what went wrong."
Osborne also said that a former Bank of England chief economist, John Vickers, will be appointed head of a new commission on the future of the banking industry. Vickers will consider proposals for the break-up of Britain’s largest banks, which could see deposit-taking institutions separated from investment banks.
"We need a proper debate about the future structure of banks, the relationship between retail and investment banking, and the question of how to ensure greater competition in the banking industry," Osborne said.
Ex-Treasury chief Alistair Darling said Osborne’s reforms would weaken regulation.
"The risk is that we have a dog’s breakfast of a regulatory system where no one knows who is making decisions, no one knows who is in charge," he said.
