Gordon Brown Guilty of Financial Excess Says Regulator

Gordon Brown helped fuel banking crisis - FSA head Gordon Brown helped fuel Britain’s banking crisis by pressuring the City regulator not to intervene and stop reckless lending, Lord Turner, the head of the Financial Services Authority, said.  

By Robert Winnett, Deputy Political Editor
Last Updated: 11:20PM GMT 25 Feb 2009

Chairman of the FSA Lord Turner Photo: JULIAN SIMMONDS

The authority’s chairman claimed the regulator was under political “pressure” not to be “heavy and intrusive” with banks such as HBOS and Northern Rock.

Instead, it was told to operate a “light touch” approach, which had now been proved to be “mistaken”, he told a Commons committee.

The failure of the regulator to intervene earlier has been blamed for the banking crisis, which has led to the near-collapse of several of the country’s biggest banks.

Lord Turner’s remarks, made to MPs, are deeply embarrassing for the Prime Minister, who oversaw the FSA while he was Chancellor.

Mr Brown has repeatedly been accused by political opponents of failing to take responsibility for his role in the banking scandal. The latest allegations came as the Treasury prepared to unveil details of another bail-out package to rescue ailing banks.

The first stage, to be announced on Thursday, will be a deal to help the Royal Bank of Scotland (RBS).

It will see taxpayers underwriting more than £250billion worth of the bank’s debts for up to a decade, just as it announces the biggest corporate loss in British history of up to £28billion.

Appearing before the Treasury select committee, Lord Turner told MPs: “All the pressure on the FSA was not to say why aren’t you looking at these business models, but why are you being so heavy and intrusive, can’t you make your regulation a bit more light touch?

“We were supervising people like HBOS within a particular philosophy of the way you do regulation, which I think in retrospect was wrong.

“It was not the function of the regulator to cast questions over overall business strategy of the institutions - you may find that surprising.”

He added: “I think (the FSA’s actions were) a competent execution of a style of regulation and a philosophy in regulation which was, in retrospect, mistaken.”

John McFall, the chairman of the committee, said the remarks had raised serious questions about the FSA’s independence.

Mr Brown and Ed Balls, previously his key adviser, had regularly boasted of the benefits of so-called “light touch” regulation.

The Prime Minister has also faced accusations that he became too close to senior bankers such as Sir Fred Goodwin, the former chief executive of RBS.

Lord Turner, himself a former investment banker, said: “There was a philosophy rooted in political assumptions which suggested the key priority was to keep it light rather than to ask more questions.” He effectively admitted that the regulator had not been fit for purpose for much of the past decade.

Two weeks ago Sir James Crosby resigned as deputy chairman of the FSA following claims by a whistle-blower.

Paul Moore claimed he was sacked five years ago by Sir James, who was at the time head of HBOS, for warning that the bank was taking excessive risks. Sir James insisted there was “no merit” to Mr Moore’s claims.

Lord Turner promised there would be a “fairly complete change” in the regulation of British banks and said the FSA needed to do a “much better job” in tackling City excess.

When asked whether the FSA was fit for purpose he replied: “We have to get it right in the future...it [the FSA] is going to be fit for purpose given the changes we are making.” Philip Hammond, the shadow chief secretary to the Treasury, said: “Lord Turner’s remarks suggest the FSA was subject to political pressure not to clamp down on reckless lending.’’

The Government is expected to unveil the latest rescue package for RBS. A similar package of help for Lloyds Banking Group, the country’s biggest mortgage lender, is due to be announced on Friday.

RBS executives and senior Treasury officials have been locked in negotiations over the exact terms of the bail-out for the bank. However, the broad principles are understood to have been agreed.

The Government will “insure” more than £250 billion of RBS assets, much of which is so-called “toxic debts”. As part of the deal, RBS will pledge to increase new lending by more than £20billion over the next two years.