At the annual Mansion House dinner on Wednesday George Osborne signalled the closure of the FSA and the transfer of its responsibilities to “a new prudential regulator, which will operate as a subsidiary of the Bank of England.”
Note the ‘prudential’: using Gordon Brown’s second favourite word to imply that the FSA was not up to the job. Which it wasn’t. Never was this more apparent than with Northern Rock where not only was the building society inadequately supervised but the Bank of England was kept in relative ignorance until far too late. As Ben Bernanke told the Senate banking committee back in December: “The government of Britain removed from the Bank of England most of its supervisory authorities. When the crisis hit – for example when the Northern Rock bank came under stress – the Bank of England was completely in the dark and unable to deal effectively with what turned out to be a destructive run and a major problem for the British economy.”
Anyway it’s goodbye to the tripartite regulatory system installed by Brown in 1997 and back to the Old Lady as the financial markets’ supervisor. It’s not quite the ‘new broom’ that Osborne makes out: quite how many of the FSA’s current staff will simply move over to the, as yet un-named, BofE subsidiary is not known although current FSA chief executive, Hector Sants, will be the first chief executive of the new body and a deputy governor of the central bank, sitting on the Financial Policy Committee.