TOP executives at the Financial Services Authority (FSA) are increasingly worried about Mervyn King’s hard-line approach to banks, just months before the Bank of England governor is due to take control of the FSA and its responsibilities.
One source close to the situation told City A.M. that FSA chief executive Hector Sants, who will report to King in his role as head of the Prudential Regulatory Authority from next year, is uncomfortable with the governor’s pugnacious approach.
King’s strident attitude was evident in a recent interview in which he said that banks “exploit gullible customers” and instead need to be “run by people who don’t think they should simply maximise profits next week”. In a swipe at investment banks, he also added that there is “too much weight put on the importance and value of takeovers”.
Another source told City A.M. that, for regulatory purposes: “A completely confrontational stance is not the place to be... King’s line is a tricky one to stick to.” And a former FSA staffer said: “The FSA sees promoting London as a financial centre abroad as one of its objectives. Talking down the banks kind of contradicts that.”
King and Sants came to their jobs from very different backgrounds: King has spent most of his career as a professor of economics in contrast to Sants, who is a former investment banker and has worked at Credit Suisse and UBS.
And the FSA and the Bank of England have widely divergent styles. Whereas the FSA interacts with banks on a routine, day-to-day basis and employs a large number of staff from the private sector, the Bank is headed by economists and has been criticised for what many see as an overly formal, “Ivory Tower” approach.
The gap between the two organisations will raise concerns about how they can work together effectively. The FSA is due to be split up in the coming months and much of it moved to operate under King’s authority under plans drawn up by the Treasury.
The Bank of England and the FSA?declined to comment.