Proposed reforms of the financial system will mean tougher regulations for banks, and more protection for consumers.

Chancellor Alistair Darling outlined new rules that oversee financial stability but keep the current system of regulations.

However, Shadow Chancellor George Osborne believes these are an “inadequate response to the economic crisis.” He says the Conservatives would tear the current pieces to shreds and start again, giving supervision powers to the Bank of England.

Darling reinforced the tripartite regulation system between the Bank of England, the FSA and the Treasury, but the Conservatives say: “We will put the Bank of England in charge of the prudential supervision of banks, building societies and other significant financial institutions.”

In Alistair Darling’s statement to the House of Commons, he said the financial system needed more robust regulations, and that banks and financial institutions should be better managed.

What Would Change?

His proposal included the following ammendments:

- More help for consumers-a strengthened deposit protection scheme and a national money advice line funded by the banks;

- More Competition-using the FSA and the OFT to ensure new people can enter the banking market;

- New Council for Financial Stability-regular meetings between the FSA, Bank of England and Treasury to report systematic risks and financial stability.

Mr Darling says he wants to “make sure that in the future when the Bank of England or the FSA or anyone else starts flagging up threats to the economy there is a formal statutory body that has to consider these warnings and then do something about it.”

He added that “We need a change of culture in the banks and their boardrooms, with pay practices that are focused on long-term stability, and not on short-term profit.

“The FSA now has power to penalise banks if their pay policies create unnecessary risks and are not focused enough on the long-term strength of their institutions.”

The current system is meant to work by the three primary bodies communicating with each other, sharing information between them, and take care of their own specialised areas. The new policy would help this.

‘Champagne Corks Popping’ As It’s ‘Business As Usual’

However, the system doesn’t make clear who would be in charge if another such crisis should occur.

Vince Cable, Liberal Democrat Treasury spokesman said: “This is not so much a White Paper as a blank paper.

“Mr Darling should have used this opportunity to assert his authority over the banks – instead he is maintaining his passive role in [the government’s shareholding body] UKFI, which is just not good enough.

“There will be champagne corks popping all over the City this afternoon. The chancellor’s statement proves it really is business as usual.”

The British Bankers Association (BBA) said: “We believe appropriate and effective regulation, capital applied according to risk and good quality supervision are the cornerstones of a vibrant community.

“We welcome moves to create better coordinated financial stability jointly with the FSA and the Bank of England.”

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