Frank Field MP
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Capital Idea

The FSA Chairman is always worth listening to. Lord Turner has a proven track record. But what are we to make of his speech last night? Banking capital ratio rules should be used as a counter-cyclical device.

This is a welcome, but pretty late announcement. When the Government first started pumping huge sums of tax-payers’ money in to our banking system, to increase its capital base and free up the flow of credit to businesses, the FSA tightened its expectations on the banks’ capital ratio. In a single stroke much of the good that could have come from this move was neutered. So there should be much pleasure in heaven over this repentance. And the speech comes a day after the FSA sensibly began back tracking on its previous policy.

As far as his pro-active agenda, I hope Lord Turner will now start to rebuild the firewall between high-street and merchant banks. The twin architects of this destruction – Messrs. Greenspan and Summers – ought to be called before an Economic war crimes tribunal for they more than anyone who are guilty of letting off the lead the greed of bankers. Sadly Mr. Summers in ensconced back in the White House where he did so much damage last time, under Bill Clinton.

The FSA therefore needs to resist robustly the financial lobby that is already girding its loins to defend the status quo. The representative was on the Today programme telling us that it was us poor consumers that were demanding these highly-developed financial products.

B******s. That is simply untrue. The overwhelming majority of us demand no such products. We want a banking system that does not rip us of with unfair charges. Similarly occasionally we like to negotiate loans for big purchases such as our homes. It is the financial sector that promotes us making all the running.

If the financial industry wants to create fancy products and fancy prices, they should do so in a clearly defined sector that does not affect the rest of us.

That is what used to reign in the division in between merchant and commercial banks. Of course this will result in a major restructuring of the high street banks. But it is that division that the FSA needs to re-establish pronto.
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