Banking Crisis - Treasury Contents

Memorandum from Graham Senior-Milne

  Over the last few weeks I have watched the proceedings of the Treasury Select Committee, which you chair, with a sense of increasing outrage. Let me explain why, in terms which, as a simple accountant and auditor, I hope most people will understand.

  The global recession has been caused largely by the banking crisis. The banking crisis has, in turn, been caused largely by excessive risk-taking by banks around the world, but principally in the USA and the UK, who have undeniably "led the pack". The excessive risk-taking by UK banks has been enabled by a weak regulatory regime. To put it the other way round, a strong regulatory regime in this country could certainly have avoided the worst effects of the banking crisis. The banking regulator in this country is the FSA, which is a supervisory arm of government, set up by and acting on behalf of the Treasury. It is therefore largely the government's responsibility that the banking system in this country is in such a mess.

  The Labour Government in general, and Gordon Brown in particular, have fostered a risk-taking and loosely-regulated banking environment since coming into office and the blame for doing that must be laid squarely at their feet.

  So where does the Treasury Select Committee come into it? Well, your Committee, like all Parliamentary Committees, is there to hold the executive to account; that is, to ensure that the Government is doing its job properly. On this basis your Committee oversees the FSA on behalf of Parliament. The question therefore arises as to how well your Committee has done its job of overseeing the FSA in the past 10 years or so and whether it (the Committee) could or should have done more to prevent the current banking crisis.

  In October 2008, the Parliamentary Ombudsman issued her report on the Equitable Life Crisis, and that report identified serious wrong-doing on the part of the FSA, including that it had "actively misled" policyholders. What she identified were not isolated acts of negligence or misconduct by individuals, but widespread, continuing, systematic (institutionalized) and conscious wrong-doing on the part of the organisation; in short, a body that was clearly, to use John Reid's words, "not fit for purpose" as a regulator.

  The point is that the Equitable Life Crisis happened back in 1999 and 2000.

  All the key evidence that was available to the Parliamentary Ombudsman for the purposes of her 2008 report was available to your Committee when it investigated and reported on the Equitable Life Crisis in 2001. The only conclusion is therefore that had you investigated the Equitable Life Crisis properly in 2001 then you would have identified that the FSA was "not fit for purpose" as a regulator at that time, and had you done this then you could have taken steps to radically reform the FSA 7 YEARS AGO. Had you done this (that is, turned the FSA into an organisation that identified and dealt with problems robustly rather than brushing them under the carpet) then it is probable that the UK could have avoided the worst effects of the banking crisis—or, at least, that we stood a good chance of doing so.

  But there is more. Not only was all the key evidence concerning the FSA's lack of fitness for purpose available to your Committee back in 2001, but on 22 August 2003 my then MP, Sir Archy Kirkwood, wrote to your Committee on my behalf on this very subject (the FSA's misconduct during the Equitable Life crisis and in relation to GAR liabilities generally). You then spent the next four years fighting what I can only describe as a rear-guard action in order to avoid investigating this matter and I even understand that, as a result of your efforts, it was never even considered by the Committee as a whole.

  As Chairman of the Treasury Select Committee since 1999 you have been entrusted with a great responsibility, which is to hold the Government to account on behalf of Parliament. It is clear that you have, in fact, done precisely the opposite; you have sought to protect the Government as far as you possibly could. In acting as you did, you, and the other Labour members of the Committee who have acted in concert with you, are primarily responsible for the failure to ensure that the FSA was fit for purpose as a regulator. In order to identify one of the main causes of the banking crisis in the UK, you need to look no further than your own mirror.

  During the session of the Treasury Select Committee on 10th February 2009, a member of the Committee, Nick Ainger MP, asked the former bank executives attending at that time (Sir Tom McKillop, Sir Fred Goodwin, Lord Stevenson and Andy Hornby) what banking qualifications they had. Although I feel it might be an idea to ask you this question as well, I am sure you will appreciate why I feel it is not qualifications that matter in the banking industry, it is trustworthiness. It is largely lack of trust that is responsible for the current credit squeeze and it is trust that must be rebuilt—but we need to be able to trust not just the banks and the people who run them but the regulator who oversees the banks and the politicians who oversee the regulator.

  In order to rebuild trust at the political level, it is essential that, in future, the Treasury Select Committee should be chaired by an opposition MP.

  This is my recommendation to the Committee.

21 February 2009

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