Can't move on

Now that the Northern Rock episode has disappeared from the papers and seems to have slipped back under the radar, let's consider what happened and how it makes Gordon Brown look.

As soon as he arrived, fresh-faced, at number 11, one of his first (and most trumpeted) acts as Chancellor was to give the Bank of England independence on rate-setting. He then proceeded to write the Financial Services and Markets Act that created a single regulator for financial services firms. This took banking supervision away from the Bank of England and gave it to the FSA, because the Bank was seen by some key people as having done a poor job of it.

At this point, I should declare some expertise (lest you think I'm being misleading). I used to work in the Major Financial Groups Division at the FSA supervising major banking groups. So I do know what I am talking about. Not that I don't normally, but in this case I actually do.

The FSA's aim (unlikely to have been approved without the evil Scot's say-so) was to 'Maintain markets that [were] orderly, clean and efficient, and to get a fair deal for consumers'. It said, rightly in my opinion, that it was the sign of an advanced and competitive banking market if a bank went to the wall occasionally (through solvency or bank runs). Capital requirements were based around solvency, and liquidity requirements around being able to survive for 5 days (i.e. to the next weekend when the bank could be sold). We focused on credit controls and risk management to assess the stability of each bank, and based their capital requirements on the likelihood of them getting it wrong, but at the same time aimed not to stifle the innovation that would be part of any banking system.

Let's summarise quickly: banks assumed not to be keen on going bust, FSA monitoring the banks' overall controls, Bank of England still as lender of last resort to give a chance to bail itself out in a crunch, and the occasional bank slipping through that system (with deposits fully protected up to £30k and 20% refunded over £30k) seen as the bi-product of an efficient and competitive financial system.

So, what happens the first time that this was properly tested? Brown bails out on the system that he so carefully constructed, and has the new Chancellor step in with full depositor protection to avoid the bank going bust. Let's assume that it is no coincidence that the bank they are trying to save is very heavily concentrated in the North-East, one of Labour's core heartlands. It still shows that 'Bottler Brown' is not so bad a nickname, that he is petrified of anything undermining his reputation. Is this the sort of man that you want leading the country?

Finally, a mention must go out for the woman who appeared on BBC Breakfast saying that she would 'never trust banks again' and that 'in future, all of [her] money [was] going under the mattress':

seriously?have you never heard of burglars before? Space-cadet...