We take a resolutely tripartite approach to crisis management in the UK: central bank, regulator and government (in the form of the Treasury) all have roles to play. But they are 2 distinct roles, and need to be clearly understood by all parties so that there is no confusion ‘on the day’ about who is responsible for what.
And these roles need to be carried out co-operatively. The framework for this cooperation is provided by the tripartite Memorandum of Understanding, first drawn up in 1997 when responsibility for banking supervision moved from the Bank to the newly-established FSA.
That was Ian Bond, a member of Andy Haldane’s Financial Stability team at the Bank of England, addressing a British Bankers Association workshop back in October 2006.
He was speaking in hope and, it now turns out, in complete ignorance.
Consider the words of his boss, Mervyn King, speaking at Mansion House on Wednesday evening:
The Bank finds itself in a position rather like that of a church whose congregation attends weddings and burials but ignores the sermons in between. Like the church, we cannot promise that bad things won’t happen to our flock — the prevention of all financial crises is in neither our nor anyone else’s power, as a study of history or human nature would reveal. And experience suggests that attempts to encourage a better life through the power of voice is not enough. Warnings are unlikely to be effective when people are being asked to change behaviour which seems to them highly profitable. So it is not entirely clear how the Bank will be able to discharge its new statutory responsibility if we can do no more than issue sermons or organise burials.
A turf war over who regulates the financial system in the UK has been underway since Northern Rock imploded.
But it really is out in the open now…
Related links:
King and Darling in struggle for power – The Sun
Who is right – King or Darling? – Guardian poll