3 Looking forward |
68. In Session 2009-10 we will continue to monitor
the Government's response to the banking crisis. The Government
has announced that Northern Rock, and parts of Royal Bank of Scotland
and Lloyds Banking Group are to be sold over the next four years.
The Chief Executive of UKFI told the Committee that he would "certainly
expect to see a positive return on our portfolio over time".
We will maintain our scrutiny of UKFI's progress towards this
goal and the behaviour of those banks in which so much public
money is invested.
69. The banking crisis created a number of significant
challenges for the Government. Scrutinising how the Government
responds to such issues as restoring public finances to good health,
reforming the financial system, dealing with rising unemployment,
high levels of consumer debt, and the availability of credit,
will dominate much of our future work.
70. During our visit to Brussels both Commissioner
Kroes and Commissioner McCreevy stressed the need for politicians
to take a long term view when considering policy responses to
the financial crisis. In Session 2009-10, with the inevitable
distractions of a looming General Election, it is important that
we retain our focus and that our reports are considered, well
argued, and based on sound evidence. We hope that our reports
of Session 2008-09 have met this challenge.
71. The banking crisis faces policymakers with a
dilemma. It is clear that there have been major and catastrophic
failures both in the behaviour of participants in the financial
sector, and in the regulatory framework, both by sectoral regulators
and central banks. Working out ways in which to reform that regulatory
framework at both national and global level will not be easy.
There are difficult balances to make between allowing free market
innovation, and providing a framework which prevents gambling.
As the FSA has pointed out, in a recent paper, many regulatory
choices have policy effects: the nature of the trade-offs between
stability and possible growth need to be carefully considered.
Moreover, this has to happen in the international arena, as well
as in individual countries. At the same time, as the acute phase
of the crisis passes, there will be a pressure to return to business
as usual. Indeed, the first signs of that are already clear. In
evidence to us, Sir David Walker considered concerns about bankers'
bonuses as a "socio-economic phenomenon"; it was only
when our Chairman intervened that he conceded that there might
be some trade-off between money allocated to the bonuses, and
money used to rebuild capital.
The return to business as usual can also be seen in the way in
which thoughtful policy discussions can be presented as ideological
battles between, for example, the FSA and the Bank of England.
72. The fear that return to 'business as usual' would
soon blunt the desire for reform perhaps underlay the European
Union's proposal to restructure its entire regulatory framework
as quickly as possible. But that way too, there lies danger. Some
policy changes will be urgent. Some will require careful consideration
and debate. Some policy changes will need to be reconsidered in
the light of events. We hope that over the next year our work
will encourage debate on the key issues, such as how to prevent
institutions being too big or too important to fail, or how to
allocate resources between capital rebuilding and remuneration.
It is too early to expect there to be a clear answer to these
questions. As the Governor of the Bank of England told us:
We need radical reform of the international monetary
system. In large part this goes to politics at least as much as
to economics, so this is probably more in your domain than in
mine. I shall continue to argue for reform of the international
monetary system, as I have for many years in speeches. It is very
important. If we ignore it and fail to tackle it I fear that some
of the concerns we thought we were about to experience at the
beginning of this year
will come back to haunt us.
We need to ensure both that hasty ineffective measures
are resisted, and that political will for reform does not fade
before the necessary reforms are in place. Maintaining that balance
will be a key task for the next session, and beyond.
60 Oral evidence taken before the Treasury Committee
on 4 November 2009, HC (2008-09) 1090-i,Q 19 Back
Oral evidence taken before the Treasury Committee on 3 November
2009, HC (2008-09) 1089-i, Qq 3-4 Back
Oral evidence taken before the Treasury Committee on 24 November
2009, HC (2008-09), 34-i, Q 82 Back