Britain's chancellor Alistair Darling called today for new “backstop” powers to stop banks around the world over-extending themselves with “catastrophic” consequences for the wider economy.
Speaking ahead of the G20 finance ministers’ meeting in Sussex at the weekend, Mr Darling said both national and international regulators needed additional powers to help restore confidence in the system.
In an interview with Channel 4 News, he also signalled his hopes for an agreement on bringing offshore tax havens into the global regulatory system, saying there had been a “sea change” in international attitudes to the issue.
Mr Darling said the experience of recent months had underlined the importance of ensuring that the banks built up their capital reserves when times were good and that they did not over-stretch themselves.
“That is one of the problems that we have had to face. Banks took on too much risk - RBS, for example, buying the Dutch bank ABN. They took on too much risk with catastrophic consequences for them and the wider economy,” he said.
“Making sure that they have got adequate capital against times when things are tough, I think that is very, very important.”
Ultimately, he acknowledged, it was an issue that would require international agreement if it was to be effective.
“There does have to be international agreement because you can’t possibly have a situation where one set of banks have got a different regime to another,” he said.
However, with Financial Services Authority (FSA) chairman Lord Turner of Ecchinswell due to publish his proposals for reform next week, Mr Darling said there was a need for action at both national and European levels as well.
National regulators like the FSA needed the “backstop power” to tell the banks: “Look, you are overstretching yourself, you can’t go any further.”
He said: “It will be all part of building confidence that, in the future as we come through this to recovery, we are putting our banking system on a proper footing.”
The Chancellor suggested that initially the International Monetary Fund could act as a global “watchdog” for the banking system.
He said he also hoped to see agreement at the G20 on the regulation of the “shadow” banking system - such as hedge funds - and offshore tax havens.
Recent allegations involving financiers Bernie Madoff and Sir Allen Stanford had, he said, highlighted the need for international action.
“I think you will see a sea change in attitude, a sea change in approach, from countries all over the world,” he said.
“One of the problems that we have had with tax havens over the last 10 or 15 years or so is the reluctance on the part of many, many countries to get into this area.
“If you look at what has happened recently with the Madoff and Stanford cases in the United States, that does raise quite serious questions about was going on behind closed doors.
“It is not just the tax, but it is also that, if you have got things hidden away, one of the key lessons from these last couple of years or so is that the lack of openness, the lack of transparency, in itself has been tremendously damaging.”
PA