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Pay and bonuses
Pressure on the City to reform its bonus culture is stepped up. The Financial Services Authority will report each year on how institutions are complying with its remuneration code. It may impose higher capital requirements on banks it deems to be rewarding risks with extravagant bonuses, hitting their profitability. The code says pay and bonuses must be tied to long-term success not short-term deals. There will be no cap on pay and no naming and shaming.
Chancellor takes key role
New Council for Financial Stability, chaired by the Chancellor, tasked with guarding against excess risk in economy. With members from the FSA and Bank of England, it will discuss crises and meet regularly to debate wider issues. It aims to tackle the weakness of Gordon Brown's tripartite system of regulation, which failed to spot the looming credit crunch. Mervyn King will be disappointed he lost his bid for the lead role.
New powers for FSA
Lord Turner's FSA wins the battle for new powers. It gets a statutory objective to maintain financial stability, signalling to the Square Mile that it will not just look at the banks' books but at wider stability issues. These include assessing the knock-on effects of a bank going bust, in terms of the effect on other banks and the economy. The Tories say they would put the Bank of England in charge instead.
Consumer information
An advice hotline for consumers baffled by the array of mortgages, pensions and savings plans on offer is to be tested. It would be similar to NHS Direct. Warnings like those on food would highlight risks. Home loans would come with an alert if customers had to borrow many times their salaries, encouraging them to consider the risk of rising rates. Mr Darling wants to make all families more financially literate.
Building societies
The Chancellor is promising a "bigger role" for the remaining building societies and mutuals, whose traditional practices were better suited to averting crisis. The Treasury may boost funding to the sector, reducing the incentive to them to become banks and issue shares.
Reader views (1)
The underlying cause of the economic crises was that Governments didn't control the money supply and let asset values - houses, property etc, and high-level wages grow far too much - creating "make-believe" money that had nothing real to back it when the crunch came.
Governments were too concerned with making the economy 'grow' and seem to imagine that this boom' could go on for ever.
- M Wood, somerset uk, 08/07/2009 15:45
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