Morning:
14°c
When something goes badly wrong, the human impulse is to move on and try to forget it. The bankers, and the government that was supposed to be regulating them, are no different.
In the past couple of months, many banks have started to make money again.
There is growing talk of a return to boom year bonuses, as if the near total collapse of the banking system last autumn was some unpleasant dream.
Gordon Brown has declared there's nothing wrong with the system of bank regulation he created 12 years ago, as if the failure of that system two years ago never happened.
People need to remember some hard truths. The banks are making money again because taxpayers have bailed them out.
There is more than a trillion pounds of public money being used to insure bad losses, guarantee inter-bank loans, swap illiquid for liquid assets, and provide capital to support institutions that would otherwise go bust.
Central banks are providing virtually free money to the banking system, not so those who work in it can pay themselves mega bonuses again but so they can repair their banks' balance sheets and start credit flowing again.
Meanwhile, the innocent victims of the failures of bank boards and bank regulation are the tens of thousands of people who are losing their jobs every month in the rest of the economy and the millions of families who will be saddled with the debts to pay for this economic fiasco.
So, yes, we want a competitive City to rise from the ashes of the credit crunch; but we cannot allow a return to "business as usual" as if nothing happened.
We need to learn the lessons and radically change the way we regulate banking. The current Labour Government will never do that.
It is not prepared to be honest about its mistakes and correct them. Protecting the vanity of the Prime Minister who designed the system of financial supervision that so spectacularly failed is more important.
The result is we will have to wait for the next Conservative government to fix what is so obviously broken. This morning, David Cameron and I were in the City to explain how we will do that.
We have published our plan for sound banking, so the British economy can move from the current feeling of crisis to a new age of confidence. It is full of detailed policy proposals to deliver real change.
Our first policy is to abolish the Financial Services Authority, and the tripartite regime it operated with the Bank and the Treasury. The problem with the regime is simple: everyone was involved but no one was responsible.
So we will put the Bank of England clearly in charge. In my view, Mr Brown's decision to take away its traditional role of controlling the levels of debt in the banking system was a catastrophic mistake - and he did it without consulting the then Governor, the late Eddie George.
To do that effectively, it also needs to know what is happening in individual firms. So we will make the Bank of England responsible for the supervision of all banks, building societies and institutions like insurance companies.
Around the world there is a new understanding that you cannot separate central banking from banking regulation.
Only central banks have the expertise and the authority to challenge banks.
There will be talented people in the FSA who will want to work in the new regulation division of the Bank, and we must encourage more City experts to turn poacher to gamekeeper by getting the banks to pay more for their regulators.
Our second policy is to create a powerful Consumer Protection Agency that will bring together in one place the consumer powers now confusingly split between the old FSA and the Office of Fair Trading.
This new voice for the consumer will come down hard on anyone trying to rip off customers, something we have seen recently with excessive bank overdrafts and the mis-selling of payment protection insurance. Consumers also need a real choice for their banking so they can be surer they're getting a good deal.
The past two years has seen a lot of high street names disappear. It makes sense that before we sell off the taxpayer-owned bank shares, we get the Competition Commission to do a focused review of the retail banking market.
But I want to be honest with you. However hard we work to get it right, no system of regulation is going to be perfect and mistakes will be made. We must protect taxpayers if things go wrong.
In the past two years we saw the banks enjoy what is basically a free option. In other words, when their loans were good they kept the profits to themselves and when their loans went bad it was the public who had to pick up the bill.
In future we must demand that banks set aside much more of their own money, or "capital", for their risky lending as a form of insurance policy.
Indeed, I believe there may be certain risky activities - like large-scale proprietary trading - which cannot be safely done by the same banks which collect deposits from families on the high street.
But trying to stop that in Britain alone is all but impossible in today's global markets, so I would want to see these rules agreed at an international level.
The European Union is coming up with its own new rules too and I agree with Mayor Boris Johnson that we must fight our corner in Brussels so that these rules are right for the City of London.
We will appoint a Treasury Minister with special responsibility for doing that, to avoid the kind of mistakes we've seen with recent directives.
Financial services are one of London's most important industries. We want our businesses to succeed, compete and grow - but to do that in a lasting way, they must be properly regulated.
With Labour refusing to ditch the system it created, it's clear that the only way we can change the way our banks are regulated is by changing our government.
Reader views (4)
Maybe banks can move to more favourable countries to operate but the law has to say what ever soil they trade on they must follow the rules and laws that exist there. Just like the auto industry and any other.
This is not exclusive to the U.K. These indiscretions are almost universal. How did we allow this to happen? Who was asleep at the switch? The largesse continues. The bailouts continue to finance it, and the perpetrators remain in control and as I see it nothing anywhere is being done about it. These people are criminals and should be in jail. Why arn't they?
We should be hauling these people out in the streets along with the politicians and demanding answers. If we don't then this will all happen again and very soon.
- W.Palmer, North Vancouver, Canada
George has to make this true from next May. Already the vast sums of public money are being abused
- Edwin, beaconsfield buckinghamshire
The bankers have outmanouvered the present government, despite all the facilities and powers available to them, including holding the pursestrings. Why should our inexperienced Etonian duo, who will be using the same civil servants, and who have no experience of the financial world, or indeed the real world,be any more competent than Brown and Darling? The inescapable reality is that financial organisations can relocate elsewhere in the world and so escape taxation, regulation and soundbite politicians.
- Ronold, London, England
Quite right George. Nothing will ever be what it was before Labour wangled their way in to ruin the country. From next May the re-building of a New Britain should begin and all of the mess of previous years used as the incentive not to do the same again - EVER.
- Albert Hall, hove england
