George Osborne to centralise financial regulation

The British government unveiled plans yesterday to centralise financial regulation further at the Bank of England and reinforce its own powers to shield taxpayers from having to prop up failing lenders in future.

British finance minister George Osborne published a consultation paper to reform the regulatory system just two years after a shake-up aimed at plugging gaps highlighted by a “light touch” regulatory regime that failed to spot the 2007-09 financial crisis coming.

The government proposed making the Prudential Regulation Authority (PRA) an integral part of the Bank, ending its status as a subsidiary with its own board.

The PRA makes sure that banks like HSBC, Lloyds, Barclays and Royal Bank of Scotland hold enough capital and do not take on too much risk.

A new Prudential Regulation Committee (PRC) would sit alongside the central bank’s Monetary Policy Committee, which sets interest rates, and Financial Policy Committee (FPC), which sets the direction for regulation.

“Ensuring the Bank is well positioned to fulfil its vital role of overseeing monetary policy and financial stability is a key part of the government’s long term economic plan,” Osborne said in his announcement.

The government said the new PRC would retain the PRA’s freedom to make rules, policies and supervisory decisions.

The government also said it was looking for the power to re-define the role of the BoE’s deputy governors and other top officials without getting detailed parliamentary approval.