LONDON, July 8 (Reuters) - British finance minister Alistair Darling unveiled plans for a reform of banking supervision on Wednesday. Below are highlights of his statement to parliament and reaction from the opposition Conservative party.
”I’ve had many discussions with the Governor (of the Bank of England) in advance of the preparation of the White Paper and in particular I’ve talked about the role of the Bank.
“The Bank of England doesn’t want to do regulation for individual banking institutions. What I want is to make sure there’s a clear delineation of who does what because then you can hold people better to account.”
“The next Conservative government will abolish the tripartite system and will put the Bank of England in charge of the banks ... and other financial institutions because you cannot separate central banking from the financial supervision system.”
“We intend to return our stakes in the banks to the private sector, in a way that brings best value to the taxpayer, promotes competition, and maintains stability - and using the proceeds to cut government debt.”
”So we will legislate to set up a new Council for Financial Stability - which will bring together the Bank of England, the FSA and the Treasury. This will not just to deal with immediate issues, but also monitor system-wide financial stability and respond to long-term risks as they emerge. This needs to be done on a formal statutory basis.
”The Council will draw on the expertise of the FSA and the Bank, who are and will remain independent of Government, by looking at their regular reports - the Financial Stability Report and Financial Risk Outlook - and formally responding to their recommendations.
”That way when risks or threats to stability are identified they will be addressed. It will do this in way that is transparent and accountable - so people can see how and why decisions are made - with regular publication of minutes.
“And the Council’s responsibilities will be set out in law, with published terms of reference.”
“And, in discussion with the Treasury Select Committee and the House, we will consider how to increase accountability through greater Parliamentary scrutiny.”
”By introducing higher standards and transparency, the FSA can also improve the functioning of key markets, such as the derivatives market - so that problems in one institution are less likely to spread through the entire system.
“And the FSA and the Bank of England will make institutions put in place practical resolution plans which can be deployed in the event they get into difficulties.”
”We need to ensure our resolution regime can deal with financial institutions of all sizes, including banks that are very large or complex. Because these banks are often global, we also need an international mechanism for resolving large multinational banks - and we will be bringing forward proposals to the G20 finance ministers when they meet in London in the Autumn.
“I will also introduce legislation in the autumn, to give the FSA a new statutory objective for financial stability, and extend their powers to ensure they: Have the appropriate rules to deal with different risks in individual banks; Have tougher powers and penalties against misconduct; and take account of new developments in the financial sector - including expanding regulation where necessary - for example systemically important hedge funds.”
”Mr Speaker, I asked Lord Turner to make recommendations, which the FSA are now implementing, to strengthen the regulatory regime and increase the intensity of supervision.
”They will: Strengthen rules to ensure banks hold enough capital as a buffer against losses; Introduce a backstop power ensuring banks do not overextend themselves, lending too much when they don’t have the strength to do so; And increase the focus on bank liquidity, so they are able to carry out their business at all times.
“These measures will help ensure financial firms that are stronger, more resilient, and better able to serve the needs of our economy.”
”The FSA now has powers to penalise banks if their pay policies create unnecessary risk, and are not focused on the long-term strength of their institutions.
“And from now on, I will require the FSA to report, every year, on how financial institutions are complying with their new Code of Practice for remuneration, and how they will deal with firms that don’t comply.”
“Consumers will also get more protection, along with greater right of redress and access to compensation if things go wrong. We will also improve arrangements for depositor protection, including legislation to pre-fund and expand the role of the Financial Services Compensation Scheme.”
“I want to take steps to help consumers make better informed choices. To ensure they are given access to free impartial financial advice, we will legislate to introduce a national money guidance service and impose a levy on the financial sector to help fund it.”
ON BANKS’ RISK-TAKING
“Financial institutions in many countries took on too much risk. They became over-reliant on wholesale funding, too exposed to particular products. And irresponsible pay practices made banks take unnecessary risks.”
“It is also clear that some financial institutions had little appreciation of what was going on inside their businesses.”