Author: By Andrew Woodcock, Press Association
Mr Brown dismissed suggestions that he should have dumped the “tripartite”
regulatory system that sees responsibility shared between the Treasury, Bank
of England and Financial Services Authority or should have required banks to
split their retail and “casino” activities.
Appearing before the House of Commons Liaison Committee, the PM said that
overseas influences were to blame for the crisis which saw the collapse of
several British banks last autumn.
And he said he remained “angry” over the inflated pay and reckless speculation
indulged in by some bankers, which he described as “irresponsible and unfair
to the people of this country”.
He welcomed the report published today by Sir David Walker, which calls for
tougher non-executive directors to crack down on boardroom excesses.
“He makes some very clear recommendations which I believe will be adopted,” Mr
Brown said. “There have been excesses, it is seen by the public as
irresponsible and unfair, we have got to take the action.”
As he gave evidence to the committee, which brings together the chairmen of
the powerful select committees which hold Government departments to account,
Mr Brown was challenged over how the system he set up in 1997 had presided
over the worst banking crisis since the 1930s.
This month’s white paper on banking reform was criticised for not offering new
powers to the Bank – as governor Mervyn King wanted – but instead
formalising the tripartite system into a new Council for Financial Stability.
But Mr Brown said: “The tripartite system is the way forward. I believe other
countries will follow it. Self-regulation is out for financial institutions
and that is why a body like the FSA is necessary.
“In matters of financial stability, we have got to involve the three
institutions and the Bank of England clearly has a major role to play.
“The reason that the tripartite group is formalised in this way is to
recognise the importance of the three institutions being able to work more
formally and institutionally together in the future.
“That’s the basis of the next stage of our financial reform and I believe that
other countries will increasingly follow what we are doing.”
Asked if he thought Mr King had become a “loose cannon”, Mr Brown replied:
“No. The governor does a good job and people recognise his talents and
that’s why he was reappointed for a second term as governor.”
Mr Brown hailed the Bank’s success in keeping inflation and interest rates low
over the past decade. He said that the global financial crisis had hit
Britain “very, very hard” because of its large financial sector, but
insisted that it did not originate in the UK.
“Most of the problems that have hit British banking have been from the
overseas assets and overseas investments and overseas interests that they
have held,” he said.
Mr Brown added: “The behaviour of banks, both in terms of their own
remuneration and in the way in which they became in some cases speculators
with people’s money rather than stewards of people’s money was irresponsible
and unfair to the people of this country.
“What we had to do was to make sure that we protected the savings of ordinary
families and that, I believe, we have managed to do.
“Equally, we had to restructure the banking system for the future on sound
principles that ensure that – while we are part of a global economy – the
integrity and trust that is necessary for a banking system exists in every
part of that global system.
“That’s why we are involved in the international discussions but why also we
are making these changes in Britain to deal with the excessive boardroom
practices that have shocked people and appalled people and made me angry as
“We are bringing in these new rules about the long-term nature of remuneration
and reward and about proper transparency and, if necessary, regulation of
the banking system where there are short-term deals getting remuneration
that seems unjustified.”
Mr Brown rejected suggestions that he should require banks to separate retail
and investment activities into distinct “high street” and “casino”
“Let us be clear, we had crises in retail banks and we had crises in
investment banks,” said the PM. “Not one group of banks was immune from this
“What we have got to deal with, in my view, are the high-impact banks and this
is what the Government’s proposal is.
“Where a bank has such resources and such potential risks for the financial
stability of the country, the regulatory measures we have got to make sure
it is doing the right things have got to be stronger for the future, and we
have got to have a better grasp of what it is doing in other countries.”
He added: “There has got to be a tougher system of regulation applied to
bigger institutions. That is what we are going to do in future. They will
probably have to hold more capital as a result of being a bigger risk to the
financial system as a whole.
“These are the measures that (Chancellor) Alistair Darling is bringing
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