Darling: Tough new rules for banks

Jul 8 2009

Banks will be subjected to tough new rules to help prevent a repeat of the financial crisis, Chancellor Alistair Darling has said.

Setting out his White Paper on financial reform to the House of Commons, Mr Darling said banks faced a "back stop" rule to prevent them lending too much.

He plans to set up a new council for financial stability as well as forcing banks to hold more capital, and draw up emergency plans for their own demise.

"Financial institutions in many countries simply took too much risk," the Chancellor said.

The Chancellor said the changes would "reform and strengthen our financial system and rebuild it for the future".

The three-pronged approach includes new regulation to allow tougher policing of existing banks, deal with failing financial institutions, and strengthen the framework for ensuring the stability of the wider financial system.

Mr Darling said the changes would leave the financial sector "stronger, more resilient and better able to serve the needs of our economy".

He also called for a change of culture and better management among banks, adding that the Financial Services Authority regulator would report to him annually on how far the banks were complying on with the regulator's guidelines on pay. "Some financial institutions seemed to have little idea what was going on inside their own business," he added.

City Minister Lord Myners lent his support to the Chancellor in response to criticisms that the White Paper is not dramatic enough. He added that the Bank of England would maintain a key role as part of the tripartite system of regulation, despite the White Paper ignoring its plea for more powers. "It will be guiding decisions, it will be informing the judgments that the Financial Services Authority (FSA) will make about individual institutions," Lord Myners told the BBC.

But shadow chancellor George Osborne said the Conservative Party would scrap the tripartite system - comprising the Bank of England, FSA and the Treasury - and return supervision of financial institutions to the Bank of England.