Given that the hon. Gentleman is an esteemed member of my Committee, I must agree with him. We took evidence on that matter—indeed, the Committee went to Sweden to examine the position there. There was a banking crisis in Sweden in 1991 and the state intervened. The Swedes did not suffer the same liquidity crisis as we did recently because they were aware of the problem. It was astounding that we did not plan for that. Neither did we have plans in place for adequate stress testing. The inadequate stress testing was another example of failure on the part of Northern Rock and the FSA. We need to put those mechanisms in place.
Let me consider the Government's consultation. I make a plea to them not to allow the financial firms to dominate the debate. I say that in the light of Professor Buiter's comments to our Committee. He said that the FSA regime could have become a "soft touch" rather than a "light touch" one. I do not hold with that point of view, but I do not want one sector to dominate. We must acknowledge that the banks have an incentive to keep the special resolution regime in the FSA rather than the Bank of England's solution, which the Committee is examining.
The Committee approaches the recommendation from the angle of depoliticisation. Our proposals are intended to ensure that the Chancellor does not need to be involved in many of the decisions about failing banks, except when taxpayers' money is at stake. The Government suggestion of a Cobra-style system may mean too much political involvement. In 1997, there were laudable reasons for moving the Bank of England and the FSA away from the Treasury. As regulators, they need to act in the overall best interests of markets and consumers, not politicians.
The Treasury Committee therefore disagrees with the Government about where the powers should reside. We believe that the new powers should reside not with the FSA but with the person who takes up the new post of head of financial stability and deputy governor of the Bank of England, and I shall outline the reasons for that. There is a need for creative tension and grit in the system. I remind hon. Members that the deputy governor in charge of financial stability was on holiday in France for a week in August when the financial turbulence occurred. That does not say much for application.
Secondly, when asked, "Did you do your job?" every one of the tripartite authority members who came before our Committee replied, "Handsomely." But if they all did their job so handsomely, how did we end up in the biggest financial mess since 1880-odd? That is the question that perplexed the Committee. When we asked the Governor of the Bank of England who was in charge, he said, "Well, can you define 'in charge'?" That indicated a real lack of leadership. If we do not get some grit into the system, we could find ourselves in the same situation again.
Some people will say that that would include overlap. Perhaps there will be overlap; but I would suggest that the tension created could be more beneficial than detrimental. Giving the FSA too much power emphasises the conflicts, but there is already a conflict. The FSA is in charge of prudential regulation, yet it is meant to support consumer interests. That is a conflict of interest. Added to that is the fact that the FSA has a role as regulator, yet also needs to find a private sector solution and oversee the special resolution regime. That is a bit like a surgeon who tells the people he is about to operate on that he has a part-time job as an undertaker, saying, "If the operation doesn't go well, we'll look after you well after that." Let us look into those conflicts of interest and see whether we can get them sorted out.
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