Bank and FSA clash over banking reforms

The Governor of the Bank of England and the chairman of the Financial Services Authority clashed publicly yesterday over who should have the power to put a failing bank into a proposed new "special resolution regime".

The Governor, Mervyn King, told the British Bankers Association conference that a "resolution authority" with special powers should have a powerful voice in deciding when to trigger the regime. The FSA as banking supervisor should take the lead role but could be prone to "risk of forbearance", causing delays, he said.

But Sir Callum McCarthy, the FSA's chairman, told the BBA the decision "should be made by the FSA, and solely by the FSA" to avoid breaching principles of clear accountability and creating confusion for the troubled lender. "To weaken the supervisor's authority in this respect by giving someone else a parallel power would be to place the FSA in a position of responsibility without authority," he added.

The City's two most powerful regulators were at pains to stress the level of co-operation between their organisations, but the spat continued a turf war that emerged in sessions of the House of Commons Treasury Committee over who should "pull the trigger" on a failing bank.

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