Farewell The FSA - You Won't Be Missed!

At long last the hapless FSA has been disbanded, and replaced by a three pronged system of governance (dare I say "Tripartite"?). As per the FT, the three prongs are:

1 The Prudential Regulation Authority, an arm of the Bank of England headed by Andrew Bailey, will supervise 1,700 banks, insurers and large investment firms.

2 The Financial Conduct Authority, an independent agency led by Martin Wheatley, will supervise behaviour at the same firms and have sole responsibility for 25,000 more, most of them brokers, investment advisers and money managers. The FCA’s multifaceted task includes protecting investors, policing the markets and promoting competition.

3 Mr Wheatley and Mr Bailey will also sit on the third new UK regulator, the Financial Policy Committee, a consensual body charged with spotting and disarming broad threats to financial stability.

Let's see how this all works then!

King Denies Fed Warning

In the understatement of the decade, Mervyn King (Governor of The Bank of England) has told the Treasury Committee that there needs to be change of culture at Barclays.

"Barclays has to create a new bank with a new culture to take it forward."

He also denied that the Fed had warned the Bank of England that Libor was being manipulated:

"If the Fed had regulatory concerns they would have shared that with the regulator, [not the Bank of England].

They didn't pass any information to us that Libor was being manipulated.

The Fed could have shared that with us and they did not, all we would have done was pass it on. The Fed is a regulator, we were not; the Fed asked us for advice on how to interact with the BBA."

This denial is rather odd given the following:

"Writing to the head of the Bank of England, among others, Geithner made six recommendations, which included eliminating incentives that could encourage banks to manipulate the rate and establishing a “credible reporting procedure.” 

Not least the fact that King responded and thanked him for his recommendations.

Notwithstanding that apparent conflict between what King said and reality, his statement that the Bank of England was not the regulator may well be technically correct given the appalling tripartite system set up by Brown. However, it surely had more than a passing interest in what was going on with the banking system and, now that it will have "beefed up" powers, most certainly has an even greater "interest".

King Rewrites History

Sir Mervyn King, Governor of The Bank of England, has stirred up a hornets nest after his recent BBC radio lecture in which he rewrote history and his/the Bank's role in the financial crisis.

Amongst other things, King said that the Bank would be very happy to co-operate with another inquiry into the collapse of Northern Rock (the bank that the Bank of England refused to bailout).

This willingness to co-operate rather took the breath away of Andew Tyrie, chairman of the Treasury Select Committee, who said that the Bank "should get on with it at the first available opportunity".

Others on the Select Committee expressed astonishment at the Governor's comments, given that the Committee has asked the Bank on numerous occasions to co-operate with an inquiry only to have their requests refused. The Bank remains the only member of the tri-partite system not to have published a review into its role in the crisis.

Hector Sants Resigns Again

Hector Sants (CEO of the failed, and soon to be defunct, FSA) has finally resigned from office.

He had resigned once before in 2010, and was due to leave in the summer of that year. However, he was persuaded by George Osborne to stay on to become deputy governor of a new regulator due to "go live" in 2013:

"As predicted on this site, George Osborne has sounded the death knell of the ineffectual and inept FSA (ironically, despite its lousy performance, FSA staff were paid nearly £22M in bonuses last year).

Osborne has stated that it will cease to exist in its current form, and a "Consumer Protection and Markets Authority" will be created.

Hector Sants, the CEO of the FSA, will stay to become the new deputy governor and chief executive of the new regulator. That announcement is to be treated with a degree of scepticism. The new body will be considerably less powerful than the FSA, and it is likely that as soon as the transition has occurred Sants will depart (as this in effect a demotion)."

As noted, this was in effect a demotion, as the Bank of England's role is to be considerably enhanced. Therefore it is not surprising that Sants has decided to step down this summer, his role in the new Prudential Regulatory Authority (PRA) body will be taken on by the Bank of England's Andrew Bailey.

Despite persuading him to stay on in 2010, Osborne doesn't seem to have offered official public thanks to Sants for his work.