Darling to Say Economic Policy Makers Tested as `Never Before
The British government's economic- policy framework is facing its biggest challenge since the independence of the central bank a decade ago, Chancellor of the Exchequer Alistair Darling will say later this week.
Twin pressures stemming from the global credit squeeze and the spiraling cost of food and energy are forcing policy makers to consider tightening oversight as the role of financial markets grows. Darling will appoint a panel of experts to monitor the effect of new disclosure rules for investors with short positions on bank stocks, the Treasury said late yesterday.
“We are exposed to global events like never before as the past 12 months have shown,'' Darling will say, according to extracts of a speech to bankers at the annual Mansion House address he is due to give on June 18. They were released by his office in London.
The Treasury also wants to beef up the bank's role in monitoring financial stability after the government was forced to nationalize mortgage lender Northern Rock Plc. The Treasury, Bank of England and Financial Services Authority currently share the responsibility for managing financial crises.
Darling will tell financiers that this tripartite system will need to adapt to the growing influence of financial markets. He will also say new rules need to take into account that differences between commercial and investment banks are shrinking, increasing the number of institutions that could derail the financial system.
Short Sellers
On June 13, the U.K. said it will force short sellers — investors who bet on declining shares — to disclose trades during rights offers and restrict hedge funds and speculators from borrowing stock, blaming them for the plunging share prices that have hampered banks' ability to raise capital.
The Financial Services Authority will impose the rules June 20. They follow a slump in Royal Bank of Scotland Group Plc and HBOS Plc, which needed to raise 16 billion pounds ($31 billion) of capital by selling new shares http://payday-badcredit.com.
Darling wants experts from the High Level Group of bankers and other financial-market professionals that advise the government to monitor the change and report on its effectiveness. The group, established in 2006 to advise on general financial matters, will be split into several smaller, more issue-specific committees, the Treasury said.
Darling will also say in his speech that the current framework needs to take greater account of the transfer of risk to the household sector in Western economies, such as the shift toward defined contribution pensions and away from traditional pension payments.
Financial Stability
The Chancellor has already said he wants to appoint outsiders to advise the Bank of England on financial stability. The Treasury may establish a panel at the central bank to assess risks to the economy, modeling it on the nine-member panel that sets interest rates, Darling said on June 5.
The Treasury is making preparations to respond to a letter from Bank of England Governor Mervyn King, who is also due to speak at Mansion House this week, in case inflation figures for May breach the government's upper limit.
Inflation may stand at 3.2 percent in the year through last month, according to the median forecast of 38 economists polled by Bloomberg News. An inflation reading of 3.1 percent or more requires King to write a letter to Darling explaining how he plans to return the measure to the government's 2 percent target.
Darling's speech will follow talks between Prime Minister Gordon Brown and U.S. President George W. Bush in London tomorrow. Risks to the world economy and efforts to conclude a global trade deal before the next U.S. election, will top the agenda, a spokeswoman in Brown's office said today in London.
Filed under: finance by Wolf