FSA May Get More Powers To Avoid Repeat Northern Rock Crisis

by Amanda Banks, Tax-News.com, London

04 January 2008

UK Chancellor Alistair Darling has announced proposals to hand more responsibility to the Financial Services Authority (FSA) when dealing with failing banks, in an attempt to prevent another Northern Rock-style crisis.

In a recent interview with the Financial Times, Mr. Darling suggested that the FSA should have the authority to "seize and protect" customers money should a bank be struck with financial difficulties.

The Chancellor also wants the FSA to ensure that should a bank hit troubled times, it maintains enough cash to continue doing business on a daily basis.

The British Banking Association has welcomed the proposed extra measures, which are expected to be put in place later this year, following a consultation period.

In a statement, the Association announced that it had been urging the Chancellor to put in place tighter controls for some months.

It explained that:

"The British Bankers' Association is pleased the Chancellor seems to have taken on board much of what the banking industry recommended. We have been urging the government to bring a speedy resolution to the issues highlighted by the Northern Rock."

"We have said:

• Liquidity is as important as capital.
• We support the tripartite system of regulation - with the FSA in the lead - but to be effective it needs to be able to attract and retain high calibre staff.

Changes are needed but have to be properly thought through on the basis of proper widespread consulation and not a knee-jerk reaction."

The BBA concluded:

"We look forward to seeing the detail of the Chancellor's proposals and working to ensure continuing success for the UK's financial services sector."

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