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Darling must show his hand now
7 October, 2008
With bank shares taking a hammering this morning in the wake of rumours that they have asked for government assistance, and fears of a recession as a result of a lack of available credit, the time has come for Alistair Darling to lead Britain through the current crisis rather than just reacting to events.
Looking at his speech to the commons yesterday he firstly said that the Bank of England will do whatever it takes, but the question to that has to be what and when.
Secondly he said, the Banking Bill will be introduced tomorrow - building on the special powers we took in February to allow us to intervene quickly and decisively. It will also give the Bank of England a statutory role to maintain financial stability - to complement the role of the FSA. This seems to be more of we will do what it takes.
Thirdly he said, just as at an international level lessons need to learnt, we need to ensure our regulatory system here is up to the mark. It's not about light-touch against heavy-handed regulation, it's about making sure that we have the necessary rules in place are that those rules are enforced effectively. I have asked Adair Turner, the Chairman of the FSA, to make recommendations for reforms. And as recent events in financial markets have shown us, regulation should be about liquidity as well as capital. That's why the FSA is considering changes to liquidity requirements. They are also looking at remuneration structures in the institutions they regulate. This is regulation and does not solve anything now.
And fourthly he said, we must do everything we can to ensure that not only do banks have the confidence to lend to each other, but also that lending is maintained to the mortgage market, businesses and individuals. I shall publish Sir James Crosby's recommendations on options for improving the functioning of mortgage finance markets shortly. But there are no positive actions to make sure this lending restarts.
So from yesterday's speech there appears to be little positive action that is being taken. Lets hope that the current (rumoured) round of meetings between the Bank of England, the FSA and the heads of the leading UK banks can result in positive action that will try and drive us out of our current situation, and if that has to mean state ownership of the banks in the end, then so be it. Not that I am advocating that, but it may be that some of the banks balance sheets turn out to be beyond repair at a reasonable cost to the beleaguered taxpayer