Comment: A test of financial competence

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Today's Guardian/ICM poll showing Labour 13 per cent behind the Conservatives was carried out before yesterday's near four per cent fall in London shares, and suggests the Government's reputation for economic competence was waning even before this week's trial of nerves. The FTSE 100 opened a little better today. But the big test for Britain's banking regulators, created by the credit crunch, is now under way. With shares in major banks suffering doubledigit falls yesterday, the regulatory system here is facing stress uncomfortably soon after performing so poorly during the run on Northern Rock. The mortgage lender had to be bailed out by the taxpayer, could not be sold and had to be nationalised in a series of events which exposed major flaws in the tripartite system of regulation introduced by Gordon Brown.

Northern Rock had a distinctive business model, much riskier than those of the big banks whose shares fell yesterday. However, now that Britain has become so dependent on its financial-services industry, most people would like to feel the Government has in place a stress-tested system for managing the particular risks to which the banking sector is prone. Unfortunately, few do feel that. Of course central bankers have far more tools at their disposal than they did in 1929 - but rapid financial innovation has meant that regulators are always playing catch-up.

Though the Fed seems poised to pump in more cheap money, that may not address the fundamental uncertainty bankers around the world currently feel about the risks other banks may be hiding. Alistair Darling's appeal to international regulators for action on disclosure and the role of the credit rating agencies addresses some of the right problems, but getting the right response from foreign capitals will be harder. All this has alarming implications for the availability of credit to homebuyers and businesses. If the Conservatives are able to build on the theme, as they have with public-sector debt, that the roof was not fixed while the sun was shining, they will do further damage to Labour in this area.