Treasury minister says more effective regulation of banking sector is key to reducing risk
British banks must be allowed to remain large enough to compete on the international stage, Treasury minister Lord Myners said today drawing a line between the Labour government and more draconian plans from the shadow chancellor, George Osborne, for a sharp reduction in the size of banks to cut risks to the taxpayer if they fail.
Myners said a review of the financial services sector by a group of City grandees argued that more effective regulation of the banking sector was the key to reducing risk and maintaining London's position as a major financial centre. Myners also argued innovation would be encouraged, despite concerns that a legacy of complex financial instruments were in large part to blame for helping create the credit crisis.
The Financial Services Global Competitiveness Group – chaired by Sir Win Bischoff, a former Citigroup chairman – said the UK must lead new global standards on regulation to ensure the mistakes of the banking crisis are not repeated.
"Some innovation has been put to inappropriate use in the past, but you do not wish to limit innovation," said Bischoff.
"It is clear that the present financial crisis has challenged public perceptions of the UK's banking sector and highlighted the need to strengthen the UK's regulatory reputation," according to the report.
It admitted the reputation of the UK as a financial centre had been hit by the banking crisis and will also need to partner with other global markets to fend off the threat of new emerging centres.
Bischoff said: "The UK is fortunate to possess a financial services sector that stands out in relation to other countries. This report should not be seen to be complacent. We believe that strong, high standards of regulation are needed for financial centres."
The report echoed a speech today by the head of the main City watchdog, who said tough regulation of finance companies would also focus on the senior executives. Hector Sants, chief executive of the Financial Services Authority, said the crisis had demonstrated that: "There are some management decisions that have revealed a degree of incompetence, and at times a rather cavalier approach regarding risk management."
He added: "The necessary challenge was missing from governance structures, in particular boards, and there may well be questions that can be asked about the openness and thus, arguably, the integrity of firms dealings with regulators, shareholders and their customers."
Copyright Speakers Corner 2016