Chancellor Alistair Darling was forced to speak out in opposition to the committee – which largely consists of MPs from his own party – after they disagreed with him completely over how future crises in the banking sector should be resolved.
As usual, the committee didn’t pull any punches in its report, with the Rock’s board, the Bank of England and the Treasury all coming in for some stick. However, it reserved its most scathing criticism for the FSA, which it said had ‘systematically failed in its duty’ by not addressing the flaws in the Rock’s business model. The MPs want the Bank of England to head up any future rescue efforts, with a team of officials drawn from the Bank, the Treasury and the FSA who report to the deputy governor.
The problem is, their Chancellor has very different ideas – he’s already said that he wants the FSA to take responsibility for dealing with future failures, allowing the Bank to retain its independent role. This has the additional advantage that he can claim to be building on the current tripartite structure, rather than admitting it was a complete waste of space. The committee seems to take the latter view – and in the light of recent events, it’s hard to disagree with them.
As a result, the Chancellor ended up having to reject the proposals in an article in the News of the World yesterday. He admitted that the FSA hadn’t exactly covered itself with glory during the Rock debacle – 'The chairman of the FSA has been quite clear in saying that there are many things that should have been done far better,' he said – but reiterated his view that the FSA should lead future rescue efforts, as part of a committee headed by the Chancellor himself. ‘We need to tighten up the system and fill in any gaps, but the reforms I announce need to build on the reforms made 10 years ago, not reverse them,’ he told the paper. He didn’t mention the Select Committee directly, but it was pretty clear what he meant.
The committee’s report has left Darling between a Rock and a hard place – which is not surprising given that most of its members are fully paid-up members of the awkward squad. The Chancellor can hardly just reverse his original plans – but having to ignore the recommendations of a Labour-controlled committee is a bit embarrassing from a political point of view, particularly when the Tories appear to share many of their views (an unlikely alliance if ever there was one). Darling seems to be losing friends by the minute at the moment...