King’s parting swipe at banks

Tim Wallace
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BANKS and the chancellor have hit back at Sir Mervyn King’s claims that the banking industry has too much access to politicians, insisting it is a vital part of the democratic system that officials can speak to those they rule.

The outgoing Bank of England governor used his final public forum before retiring – a Treasury Select Committee hearing yesterday morning – to launch a blistering attack on banks, arguing they meet politicians behind regulators’ backs and try to put unreasonable pressure on financial supervisors.

King told MPs that officials in Downing Street have come under “enormous pressure from banks, they have been lobbied and passed on concerns” to the Bank’s prudential regulatory authority (PRA).

“It is important banks don’t leave conversations with the supervisors and feel the next step is to telephone Number 11 or even Number 10 Downing Street and lobby officials or politicians to put pressure on supervisors to back down on their judgements,” King said.

“It is no good [politicians] making speeches in general to say we want an effective supervisor, then – when it comes to an individual bank – asking the supervisor to back down.”

Andrew Tyrie, the chairman of the TSC, called on chancellor George Osborne to investigate the claims. “The Banking Commission recommended the governor of the Bank of England should sound the alarm if bank lobbying of government becomes a concern. Today, Mervyn King did just that,” Tyrie said.

“Representations of the views of banks are desirable. Attempts to influence the independent regulator are unacceptable,” he added.

But Osborne hit back, arguing it is important banks get a say in the regulations that will govern them.

“Of course banks, consumer groups and anyone else can make their case,” he told parliament. “But [the Bank of England] is ultimately an independent body, an independent regulator, that makes the judgment. That is the system we have created.”

Banking groups too defended their right to speak with both the politicians who create the rules, and the regulators who implement them. “It is important there is a dialogue between industry and the government, just as consumer groups and trade unions quite properly speak to government officials on a regular basis,” said the British Bankers’ Association.

Another banking source argued there is clear evidence lobbying has not been effective, as regulations designed in the UK are even tougher than those agreed internationally.

“Most people in the City would dispute that lobbying has been this powerful, given the new capital and liquidity rules are much harsher than Basel III requires,” said an industry insider. “The idea of an immense bank lobby machine that bends everyone to its will doesn’t come close to reality. King hardly ever even speaks to banks, so there is no chance of putting direct pressure on him.”