It was strange timing for the Governor to give an interview attacking the attitude and approach of the commercial banks shortly after the government had declared an end to the war on banks. The Merlin deal was meant to mark an end to the era of hostility. It was to usher in an era of co-operation. The banks are now meant to offer good service, help the economy expand and grow, and behave responsibly on bonuses. In return the government would drop the hostile rhetoric, not impose any extra taxes than the ones already imposed, and ensure proportionate and effective regulation.
The Governor maybe wished to show he is no poodle of the government by carrying on his own public verbal war after hostilities have ceased elsewhere in the Establishment. He aligns himself with Labour in Opposition rhetoric on the banks, whilst confirming his support for deficit reduction by the government. That may well be balanced and sensible politics. It does however, have a drawback for one in his important position.
The Governor happens to be the system regulator for the banks already, and is about to become their day to day all powerful regulator under the changes to the system the government has announced. A Regulator needs to be truly independent. It is normal to avoid colourful prose or one sided remarks as a Regulator, to retain confidence in your role.
We need a detailed banking regulator of the large banks who is fearless and independent. If customers, political parties, Unions and others bring him complaints about banking conduct, he needs to have their respect as a tough impartial investigator. He needs to call for evidence and promise remedies if they make their case.
He also needs, however, to have the confidence of the banks. They must know he is no pushover and will not suffer unreasonable conduct, but they must also know he is not institutionally biased against them. They too must expect a fair hearing, and know that if they prove their complainants wrong or mischievous they will win their case. They should expect tough action against them if the evidence supports the complainants.
Dr Vince Cable and Mr Jeremy Hunt could tell the Governor a thing or two about the need for regulatory independence and the need to be careful about what you say. Dr Cable’s remarks against Mr Murdoch meant all agreed he could no longer act as regulator in the Sky case. Mr Hunt’s remarks before taking office praising Mr Murdoch’s contribution to the media in the past led Mr Hunt to rely entirely on the judgement and advice of independent regulators, instead of exercising his right to make his own decision on his own assessment of the merits, as a buttress against legal challenge. Mr Hunt first said the original deal should be referred on the advice of the authorities, and subsequently said the revised deal with an independent Sky News did not need to be referred, again on advice.
Any Regulator must be careful in public speech, and genuinely have an open mind. It is not sufficient just to avoid expressing a prejudice. It is important not to have a prejudice. They need to get at the truth,even if the truth is sometimes unpopular or contrary to common spin. Exciting interviews make this more difficult. At least the Governor lined up on the popular side of the row about the banks, which will limit the criticism of him.
Tomorrow I will discuss the merits of his individual criticisms of modern banks.