The Green shoots of a potential disaster

I am grateful to Dominic O’Connell, the Business Editor of the ‘Sunday Times’, for providing me with this week’s blog.

In an editorial headed ‘Green and the Old Lady’ he speculates on the potential contenders to replace Sir Mervyn King in June 2013 as the Governor of the Bank of England. He names seven possible candidates and plumps for Baron Green of Hurstpierpoint who as Stephen Green was chief executive and chairman of HSBC before joining the coalition as trade minister.

My own favourite is Lord Turner currently chairman of the Financial Services Authority (“FSA”). In 2002 I read his book ‘Just Capital: The Liberal Economy.’ I found it so compelling and so difficult to understand that I actually consumed it three times. Adair Turner was an excellent Director-General of the Confederation of British Industry (“CBI”).

As Dominic O’Connell has better lunches than me let’s assume his selection of Lord Green has special merit.

The question I would be asking if I were Lord Green (assuming he’s offered the position) is “do I want it?”

I have been blogging for some weeks now both on Enterprise Britain and for The Freedom Association about my fears for the future of the regulatory environment in the UK. As chairman of a London based corporate finance house I am both corporately and personally regulated by the FSA.

The present situation is that the FSA has now started to operate a new model of regulation. Called the ‘twin peaks’ it is anticipating the new structure which will be introduced in 2013.

This will divide the roles into two: the Financial Conduct Authority (“FCA”) will cover day-to-day operations and the Prudential Regulatory Authority (“PRA”) will be responsible for capital adequacy and similar matters.

The interim Financial Policy Committee (“FPC”) which is chaired by the Governor of The Bank of England, will effectively regulate the City. The Treasury Select Committee, chaired by Andrew Tyrie MP, wants to create a supervisory board within the bank. Its role will be to monitor the Governor and his senior staff.

Events recently have caused concern:

a) FSA costs are soaring. The budget for 2012/13 will increase by 15.6% to £578m

b) Hector Sants has left the FSA

c) Margaret Cole has left the FSA

d) Recently Peter Sands, chief executive of Standard Chartered Bank, referred to ‘seventies-style state control’

Into the equation now comes the political dimension. This reorganisation of the regulatory system is because George Osborne wants it (“It was all Gordon Brown’s fault.”). However his recent budget was a mess and now the Prime Minister is under real pressure for the first time (as brilliantly explained by Simon Heffer in Saturday’s ‘Daily Mail’). Will conservative doubters desert to UKIP? I doubt it when the election (luckily for Cameron not until May 2015) comes.

In the interim the Chancellor may find the Coalition support for the Bank of England wavering and Andrew Tyrie (who has serious doubts) may make the Governor’s life rather difficult.

What is far worse is that there will be more problems with the banking system. Just read your history books. The fraudsters are far smarter than the regulators.

If Lord Green is offered the position of Governor of the Bank of England I would advise him to take up full time fly fishing. It’s likely to be a lot less stressful.

 

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