The Bank of England is all set to become one of the most powerful banks in the World on Monday, after biggest transformation in the financial regulations after 1997 that will break up the Financial Services Authorities and put Bank in charge of regulation and crisis avoidance.
Under the new system, three new bodies will replace the Financial Service Authority (FSA). The three new departments are Final Policy Committee (FPC), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
The two bodies FPC and PRA will be established within the Bank, and have been stuffed with enormous powers, which not only gives them right to regulate lenders but also identifying and harbouring the bank from any potential shocks. The regulatory powers have been vested back with the bank after giving these responsibilities and powers to the bodies, which were taken after the Bank was given independence in 1997.
The new system is expected to be more efficient than the previous one. In the new setup, the FPC will be the head committee and will supervise all aspects of the financial regulations. The second pillar PRA will look after the insurers and banks have required capital and liquidity. The last committee, FCA is given the responsibility of protecting the consumers, encouraging the competition and supervising the financial service companies.
Andrew Bailey, the head of PRA division has vowed that the approach towards regulation of 1700 financial institution will be more efficient and better than before.
Martin Wheatley, head of FCA also made it clear that the new rights, which have been vested in the bank to suspend or ban products, will help the regulatory authority to make the sector more efficient
Business Secretary, Vince Cable did not see the call of Bank of England on banks to keep £25 billion extra capital in order to make their balance sheet more efficient as very encouraging because it will create pressure on lending to small and medium sized employers.
Chancellor George Osborn is, however, not satisfied by the tripartite structure of the bank and held the view that no one will take the clear responsibility to track the risk and shortcomings in the financial system as a whole. He criticised the structure for being “incoherent” and “without clear lines of accountability”.
There are, however, concerns as the bank will become too powerful after the new rights and responsibilities along with the responsibility of monetary policy in UK. The new structure of the bank definitely marks the start of a new era after the UK crisis.
Mark Carney of Canada will replace Sir Mervyn King in July and will become as the new governor of the Bank of England.