Head of City watchdog hits out at regulators

Published on 25/07/2012 00:00

The head of Britain’s City watchdog today denied that regulators could have spotted bank rate-rigging before the financial crisis, but admitted regulation was “flawed” and “dangerous” in the lead-up to the credit crunch.

Lord Turner, chairman of the Financial Services Authority (FSA), said regulators made “big mistakes” and would have to share responsibility with banks for restoring trust.

He said there was an ongoing debate on whether regulators “could have been more alert” to Libor fraud at the height of the crisis, but said they could not have stopped fixing of the inter-bank rate without “prohibitively expensive” supervision.

Yesterday’s speech – Lord Turner’s second in less than a week – is another strong attack on the pre-2008 regulatory system led by the FSA and the Bank of England.

He addressed a business audience in Manchester last week in what was seen as a clear pitch to put himself forward as the next governor of the Bank when Sir Mervyn King stands down next year.

Lord Turner’s public profile has been raised in recent weeks after Westminster hearings into rate-rigging at Barclays revealed he had privately taken the bank’s bosses to task over its approach to City rules in the run-up to the Libor scandal.

In yesterday’s speech in London, he gave a frank admission of the failings of the FSA and Bank of England before the 
financial crisis.

He said: “In the UK we had a dangerous institutional underlap between an inflation-
targeting central bank and a rule-driven regulator, with no one responsible for assessing the big picture risks, or equipped with tools to address them.”

He added the UK had a “a flawed theory of economic stability” which relied on low stable inflation to maintain stability and ignored asset booms and “totally inadequate rules on bank capital and liquidity”.