Lords call for stronger BoE

AN influential House of Lords committee yesterday issued a thinly-veiled criticism of Gordon Brown&rsquo;s stewardship of the economy, saying that &ldquo;&lsquo;boom and bust&rsquo;&rdquo; was mistakenly consigned to history&rdquo;.<br /><br />In its report on banking regulation, the Lords Economic Affairs Committee also said that Brown&rsquo;s tripartite reform of the regulatory system had been &ldquo;found wanting&rdquo; amid the banking crisis.<br /><br />The committee, led by Lord Vallance of Tummel, said the division of responsibilities between the Bank of England, the Treasury and the Financial Services Authority (FSA) had not been clear enough and advocated giving the Bank&rsquo;s Financial Stability Committee (FSC) &ldquo;unambiguous control&rdquo; of macro-prudential supervision.<br /><br />Such a move would dramatically reduce the role of the FSA, although both the City regulator and the Treasury would have representatives on the FSC, which would be given &ldquo;executive powers to intervene&rdquo;.<br /><br />The committee also recommended measures to improve the quality and knowledge of non-executive directors and focus more closely on the risk models used by banks to identify particularly risky institutions.<br /><br /><strong>LORDS ON BANKING REGULATION </strong> MORE KEY RECOMMENDATIONS<br />&9679; The government should &ldquo;urgently&rdquo; introduce policy to promote counter-cyclicality in the banking sector with international co-operation.<br /><br />&9679; Regulators should question the assumptions used in banks&rsquo; risk models and perform system-wide stress tests.<br /><br />&9679; Regulatory capital requirements should be made more stringent.<br /><br />&9679; Liquidity at individual institutions should be more closely monitored.<br /><br />&9679; The power of credit rating agencies should be reduced, with agency ratings removed from capital regulations.<br /><br />&9679; Regulators should look more closely at the UK arms of foreign banks, especially if they pose a systemic risk<br /><br />&9679; Credit agency ratings should be removed from capital regulations.<br /><br />&9679; The system of non-executive directorships should be overhauled so that non-executives are better informed and more experienced.<br /><br />&9679; Credit default swaps should be centrally cleared.