By Daniel Hunter
Mark Carney is being urged to overhaul the Bank of England’s Financial Policy Committee, which has “botched” the way it imposes new rules and “failed” to operate effectively since its creation two years ago, the country’s leading business lobbyist says.
John Cridland, the Director-General of the CBI, has issued a scathing assessment of the Bank of England committee – created by George Osborne – that is designed to prevent another financial collapse.
His intervention comes after a bitter row between the Bank and two big lenders over leverage that led Barclays’ chief executive to threaten to curb lending if new restrictions were imposed.
The CBI boss said that the FPC was guilty of sending mixed messages and he urged Mr Carney to focus on ensuring that bank regulation was working effectively. He urged the committee – chaired by the Governor – to become more like the Monetary Policy Committee, which sets interest rates.
“A lot of people have postulated that with Mark Carney in post we will shift to radical monetary policy. I think his first task is to sort out the strategic regulation of the banking sector. The MPC signals what [its] course is clearly. That’s what consumers and business want. The FPC has failed to do that.”
Senior bankers have blamed Sir Mervyn King, Mr Carney’s predecessor, for using the FPC to campaign against the banking sector.
There have been two big confrontations this year. After a six-month assessment, the FPC said last month that the big banks needed to raise £27.1 billion to fill a capital shortfall before the end of the year. Last month, the FPC and the Prudential Regulation Authority also demanded that all UK banks comply with 3 per cent leverage requirements under Basel III that initially were planned for 2019. The change was sprung on the banks with a week’s notice.
“The leverage ratio issue is a classic example of my ‘botched communication’ point. I hope it’s the last of the old. We have a new opportunity here and we have a benchmark standard. It’s called the MPC. Let’s get it together.”
Mr Cridland made clear that his criticisms were still valid, despite a recent reshuffle of the FPC membership. He wanted Mr Carney to “ensure the signalling on the FPC is as clear and consistent as the MPC signalling to the marketplace. At the moment, it’s not.”
Mr Cridland said that the FPC was only one of several challenges facing the financial sector, claiming that bankers’ bonus restrictions imposed by Europe would prove counterproductive. “We’ve got the bonus issue in the winter [and] lots of board directors are going to be spending time sorting out executive remuneration. I understand the public concern for this but it will lead to perverse outcomes.”
He added that the financial transactions tax marked “the biggest threat to the City, coming from the eurozone”.
He called on the banking industry to accept the recommendations of the Parliamentary Commission on Banking Standards as a means of repairing the sector’s battered reputation.
All three party leaders should promise to implement the recommendations of a review into airport expansion in advance, the head of the CBI believes.
Business is “frustrated” by the way in which decisions over whether to build a new runway have been delayed, with the commission of a report by Sir Howard Davies due to be published in 2015.
John Cridland, the CBI’s Director-General, said: “On aviation we haven’t even got the policy, while in the next few years China will build 70 airports. We are still talking about whether we need extra runway capacity in the South East. Now we’ve got a process in place designed to help the politicians – the Davies commission.”
He called on all three parties to commit to implementing the recommendations, despite opposition to expansion in the South East from Liberal Democrats.
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