UK FSA director criticises BoE for failings ahead of financial crisis
Staff at the Bank of England were in “completely different worlds” in the lead-up to the financial crisis, a director at the UK Financial Services Authority (FSA) has said.
Jo Paisley (pictured), director of the risk specialist division at the FSA, says that staff in different areas of the bank were working completely separately and so were ill-prepared to deal with the crisis.
“The economists working on monetary policy didn’t really talk to the supervisors – they were in completely different worlds,” she told the Annual Risk Management convention run by the Global Association of Risk Professionals in New York this week. “In the build-up to the crisis, it was pretty evident that the Bank of England did not have the right skill-set to be able to tackle the crisis effectively.”
She said the Bank had had good macroeconomic skills and good financial-market skills, but that there were “missing parts”. The Bank’s governor, Mervyn King, said last year that the Bank should have done more to prevent the banking crisis.
Paisley also told the convention that she expects the UK’s new financial supervisory system to be more collaborative. “The Bank of England staff know that they need to work with us and know that they have got things to learn from us,” she said. “It is early days, but I’m hopeful that actually we have got the right system here to build those bridges and build on the synergies between [the supervisors].”
George French, deputy director for policy in the US Federal Reserve Board’s division of international finance, defended the UK’s new regulatory system, describing it as courageous. “You can say what you like about the UK having decided to take everything out of the Bank of England, put it separately and then put it back again, but we in the US have been through two crises now and really have confronted the possibility of greatly simplifying what we are doing and essentially have not decided to do that a couple of times. The UK is certainly being much more courageous than we are in rethinking these arrangements.”
The FSA is due to split next month into the Prudential Regulation Authority and the Financial Conduct Authority. A third body, the Financial Policy Committee, will sit within the Bank of England and will have primary responsibility for the oversight of financial stability in the UK economy as a whole.
This article was first published on Risk