Morning:
8°c
Drawing on the lessons of the financial crisis, US Federal Reserve chairman Ben Bernanke used a speech on regulatory reform this week to make a strong plea for a single, more powerful regulator who could look at the financial sector as a whole, bring some consistency of approach to all its different parts, eliminate the weakness in the current fragmented American system and eliminate what are currently "rather shocking gaps" between regulators.
The more he spoke, the more he seemed to be urging Americans to draw heavily on the model of the single regulator epitomised by the UK's Financial Services Authority. How absurd, therefore, that so much of the mooted regulatory response in Britain has centred on giving more power back to the Bank of England, while blithely ignoring the fact that the Bank no longer has the people to do banking supervision.
That is for the simple reason that the entire department - including Michael Foot, the man then in charge - transferred en masse to the FSA 12 years ago when the single regulator was created. The Bank's conduct of banking supervision was, of course, largely discredited because in the previous seven years it had missed the collapse of BCCI and Barings, two of the biggest banking disasters to occur anywhere in the world in that period. For the record, the insurance lot came in from the then Department of Trade and Industry at the same time - the time bomb in their baggage being the failure to spot Equitable Life.
So if the Bank does indeed take on banking responsibility in due course, presumably the staff will all transfer back again. It is known as the Grand Old Duke of York approach to government. It does not get you anywhere useful but it gives the impression that the leaders know what they are doing.
This brings us to a more serious point, and one raised by CBI president Martin Broughton. The meeting of the G20 scheduled for 2 April in London was originally mooted as the opportunity to agree on a global plan of action to get the world economy back on its feet. By common consent, this means action on a co-ordinated fiscal stimulus round the world and urgent measures to combat protectionism in all its forms.
However, what is in fact happening - and Bernanke's speech played to this point, as does preparatory work being done by the EU and Iosco, an umbrella body of securities regulators - is that all the effort in preparation for the conference is being channelled into hot air about new regulatory structures. Hence all the railing about hedge funds and private equity and a new clampdown on tax havens.
At this time nothing could be more irrelevant. You could put every hedge fund in the world out of business and it would not make a blind bit of difference to the health of the global economy. You could ban all tax havens, and global growth would still be stagnant. These did not cause the crisis, and no actions against them will alleviate it.
Broughton's message to the Prime Minister is: "It would be nothing short of a catastrophe when you have the opportunity to make a difference that you get bogged down in issues that were totally irrelevant to resolving the current crisis."
That says it all, really. Let's hope the Prime Minister is listening.
How to be a winner by losing
They say that experience is the best teacher and the results this morning from Standard Life would seem to bear that out. This was the life assurer which very nearly bankrupted itself during the last recession by failing to understand the level of risk it was taking in its portfolios and the amount of capital it was losing on diversifications.
It got through that crisis, changed strategy to focus on less capital-intensive products, raised new capital on the stock market at a price substantially higher than the shares are now and set about rebuilding its reputation of reliability and predictability.
It strayed only once, when it made an attempt to buy Resolution Life. Like ABN Amro in banking, this was a battle to lose. Standard Life shareholders should be suitably grateful for the fact that their board was outsmarted by Hugh Osman's Pearl, which got Resolution for for a price which is probably about twice what it is now worth.
That failure means that Standard Life is the best-capitalised of all the UK life sector. Today's figures show a surplus of £3.5 billion — compared with the next best from the much larger Aviva of £2 billion and only £700 million at Old Mutual.
Well, you need a bit of luck...
