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Brown told us not to question banks on risky practices, says City watchdog
Joe Murphy and Paul Waugh25.02.09
GORDON BROWN helped fuel Britain's banking crisis by pressuring City watchdogs into “light-touch regulation”, MPs were told today.
In damning evidence to the Treasury select committee, Financial Services Authority chairman Lord Turner said there was clear “political” pressure not to question the business models of banks such as Northern Rock, HBOS and Bradford and Bingley.
The phrase “light-touch regulation” was one often used by Mr Brown when chancellor and his then City minister Ed Balls.
Lord Turner also admitted that his predecessors at the FSA had failed to spot the wider systemic risks of complicated financial instruments and
the housing and lending boom.
Lord Turner pledged the City watchdog would unveil a “revolution” next month in the way it monitors banks, their bonuses and business models.
He added that the FSA was focused on specific processes within banks rather than their overall lending policies.
Lord Turner told the committee that he had recently gone through the FSA's detailed reports on HBOS.
“We had a philosophy of how to do regulation which was founded on organisational structures, processes, systems, whether reporting lines were correct.
“It fairly overtly said that it was not the function of a regulator to cast questions over the overall business strategy of an institution, You may find that surprising. I find that surprising.”
Lord Turner was accused by MPs of deflecting criticism from the FSA itself and committee chairman John McFall said his remarks had raised serious questions about the FSA's independence.
Lord Turner stressed that economists and finance ministers had got it wrong in failing to spot the dangers in the lending boom.
But he added that if the FSA had tried to step in it risked being accused by politicians of trying to “prevent the democratisation of home ownership”.
In spite of the disastrous state to which the banking system has been consigned, the FSA also announced today that it would be paying out £21 million in bonuses to staff.
Chief executive Hector Sants told the committee that each employee would get between £7,000 and £8,000.
Reader views (17)
The FSA looks pretty stupid, as Lord Turner admits. Brown looks pretty stupid, whether he is able to admit it or not. Egg is all over his face for all to see. But let's not forget that the so-called light touch regulation was based on an atmosphere of trust, trust in the leaders of the great flagship City banks. Who in the past 15 years (except of course Nassim Nicholas Taleb) ever thought that the leaders of the City would blow up their own banks? It was taken for granted that they understood their own risks. That was their expertise. The Regulator was there to ensure fair-play, not to second guess the risk analyses of the highest paid risk analysts in history.
- Bloke, London
Brown
“I want us to do even more to encourage the risk takers”
(Gordon Brown, Mansion House speech, 17 June 2004)
"I will not allow house prices to get out of control and put at risk the sustainability of the future."
(Budget 1997)
Need any more proof? Brown bust the country. Why is he still in power? Just like Tony Blair he is trying to wriggle free.
- Rob H, London
Joe Public knows 5% of what is going on in the UK.
If you were to know 10%, you would not bother getting out of bed tomorrow morning.
- Reuben Camara, Morecambe/Lancaster
No more boom and bust Brown cretaed a miracle economy based on a massive credit bubble generating massive house price inflation. He is still trying to re-inflate the bubble with his failed policies. Now is time for him to take responsibility and resign.
- David B, eastbourne
It was three incompetent Scots who ruined the British economy: Brown, Darling and Goodwin. We should send them back where they came from and Goodwin minus his knighthood.
- Richard Kennard, London UK
Why are the "Houses of Parliament" not doing their job either - deposing of this un-elected imbecil!? Not only that now we see he also knew he was incompetently letting the banks loose.
- Jacqueline, Hampstead, London
Excellent posts and it is probably stating the obvious, but rocking the boat is highly unlikely when a bunch of Labour luvvies and "yesmen" are placed in positions that are supposed to warn ministers of any excesses in the system. It begs the question as to whether or not Lord Turner is an ex luvvie, because I don't remember him voicing any doubts about policies four years ago, when the OECD abd IMF had grave doubts about the UK's fiscal policies.
- Bingham Macnamara, lymington, hampshire
Och! It's time the wee lad was back in Bonnie Scotland - there's a panic in his breastie tonicht. Aye.
(The Chairman of the Treasury Select Committee has just finished his career by allowing Lord Turner to spill the beans.)
Isn't it extraordinary how many Lords there are involved with high finance? I've always wanted to be a Lord - but never really knew how to do it. Now I know. Work in the City. I'm giving up my greengrocery stall right now and heading on out to the land of the brave and the bonused. Yippee! Above the law - no tax payments - big yacht - Lambo - diamond bracelets for the wife - wow!
- John Problem, Hackney Wick, London, UK
It fairly overtly said that it was not the function of a regulator to cast questions over the overall business strategy of an institution, You may find that surprising. I find that surprising.”
But what did you say at the time, Lord Turner? Did you find it surprising then? Many people who simply read the papers and saw what house prices were doing in relation to earnings, and the headlong explosion of derivatives - basically gambling with borrowed money - predicted a crash years ago: you didn't have to be a financial genius to see that a huge pyramid scheme was building up. The bigger question is, why was it harder for the experts to see it or, more likely perhaps, what pressure were they under not to say anything that would rock the boat?
- Mdj E10, london, uk
It must also be remembered that Labour had 10 years to correct any policies it inherited from the Conservatives, didn't change many out of choice, rode the boom wave declaring it was all down to them, bullied and harassed and politicised every senior civil servant into doing their bidding and their bidding only and then ran away from any blame, on any issue, at all times. You really can't hark to what John Redwood was doing because you can't say that it would have ended up with the same result. Gorden and his policies contributed to the mess we're in now and he should be man enough to accept blame, but like all labour luvvies just seeks excuses and deflection.
- Rob, London
The question should never be light or heavy supervision it should always be appropriate. These Banks flooded the UK with Debt that inflated an unsustainable spending boom. Brown, Labour, The Treasury, Bank of England and the FSA cheered this on as an economic miracle. Responsibility cannot be delegated, the prime economic responsibility of any government is to ensure there is sustainability. Brown revelled in the debt driven spending, ensuring there were no real questions asked of the banks.
Ask yourself why economically we have a government, a Bank of England and an FSA. It’s so money is secure and used appropriately both in physical and value terms.
Ignore the rubbish about the UK’s problems being imported from errors in the USA, our Banks were allowed and even encouraged to borrow Trillions to create a false economy in the UK.
- Bill G, Gerrards Cross
So now we know - Broon is not the 'saviour' he tells us but the destroyer we all knew he was. As for Nottley from Isleworth - get a life and stop trying to pass NuLab disasters off as Conservative policy. Brief political history lesson: 1997-now, Labour in government, conservative in opposition.
- Andrew E, Leaving the sinking ship England
Brown boasted about his 'regulation light'. He did this for 'his best and true friend' Fred the Shred, shredded RBS, and Crosby who ruined HBOS. None had proper experience in finance. Brown boasted 'I ended boom and bust'. He had NO idea. he was fiddling with little cogs while not looking out to sea where a storm was coming. Arrogant, ignorant hypoctite, and risky conman.
They took huge unnecessary risks with shareholders, clients and taxpayers money, and having bet very badly they lost. They have destroyed about 33% of UK wealth. Some say jail, others want gallows.
Scots are deeply angry that RBS their symbolic bank was trashed by an arrogant ignorant gambler. They should jail him.
But Brown and Fred all just grinned at a few pathetic questions from an MP's Committee and went off to count their huge bank accounts.
- Jim, brecon
Just what I have been saying in all my posts on these boards and that is that Brown is to blame for the banking fiasco and to compound the problems, Brown has been employing spin to deflect blame from himself, which in turn has confused the interpretation of what policy is intended.
- Bingham Macnamara, lymington, hampshire
I don't understand how the FSA can be giving employees a bonus when they failed to regulate the banks to prevent us getting into the mess we find ourselves in today. The only thing that seems clear to me is that the bankers, the politicians and the FSA (to name but a few) are doing nothing but protecting themselves!
- Sharon, London
The FSA costs a fortune to run. It costs financial firms even more through compliance officers and red tape. It missed the big picture. If it was an independent audit firm, it would be sued to high heaven. It is worth nothing to Equitable Life investors and to bank shareholders and cutomers.
- William, London
It must be remembered that at the same time Conservative Policy was to cut regulation of the Banks. It was always a popular item at the Tory Party Conference when John Redwood turned up with a two foot high stack of computer paper to demonstrate all of the regulations he was going to abolish. It always got the pensioners to wake from their after dinner naps and give him a standing ovation.
- N Nottley, Isleworth England
