Chancellor set to ‘toughen up regulatory system’

In a bid to prevent future meltdowns of the banking system, Chancellor Alistair Darling is set to announce key reforms of banking regulation today.

According to the Chancellor, the reforms will “toughen up of the regulatory system” in order to “learn the lesson of what went wrong… and make sure we reduce those risks”.

Proposals in the White Paper include preventing asset bubbles (such as the property boom), while steps will be taken to boost competition in retail banking.

Furthermore, the Government is considering the use of “health warnings” on financial products (such as mortgages and pension) - similar to those used on cigarettes and alcohol. The aim is to show consumers how risky the products are.

Meanwhile, the Chancellor is set to tell MPs that banking executives will have their pay linked to long-term profitability. Remuneration packages to senior banking executives have caused outrage this year.

One example was Sir Fred Goodwin, former chief executive of Royal Bank of Scotland. He and former chairman, Sir Tom McKillop, were both blamed for the near collapse of the bank, which had to be bailed out by the Government. Sir Fred recently gave in to public pressure and agreed to hand over £4.7 million of his controversial £17 million pension.

The Government has put up more than £1 trillion to bail out struggling banks.

However, many believe the proposals do not tackle key issues such as which body should have the power to prevent irresponsible lending.

It is reported that the Chancellor will maintain that the Financial Services Authority remains in overall charge of regulation but many experts believe Governor of the Bank of England, Mervyn King, should have more influence.

Mr Darling will outline his plans later today while, Lord Myners, City Minister, will field questions from the Commons Treasury select committee afterwards.

Last month, US President Barack Obama announced he was proposing a major reform of banking regulation in order to prevent future meltdowns of the US banking system.

Mr Obama described the reforms as biggest overhaul of the system since the 1930s, which will see major banks put more money aside against future losses to prevent excessive risk taking.

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