Rock exposes cracks in regulation

How refreshing to see that the greatest light to be shed on the Northern Rock crisis was cast by the Treasury Select Committee.

Too often people dismiss backbench MPs as mere lobby fodder or careerists biding their time before they get front bench preferment. Once on the front bench it seems to become all about soundbites and striking postures rather than getting to grips with the substance of policy. In many ways this is the legacy of the Blair era when PR and image was often thought to be everything; a legacy the Tories are now lumbered with through Blairite clone David Cameron.

Cue the Treasury Select Committee, sitting while the rest of Parliament was still in recess. They asked the right questions about when the looming crisis was apparent and why the Bank of England did not act sooner, and they also exposed the confusion at the heart of bank regulation as the tripod stall of Treasury-Bank-Financial Services Authority looked distinctly unstable.

The part of Mervyn King's evidence that struck most powerfully was his plea to allow the Bank to move behind the scenes to rescue ailing financial institutions before everything becomes public.

It is a little over 20 years ago that the insurance industry was faced with just such a scenario when the fast-growing mutual life company UK Provident over-stretched itself and was staring insolvency in the face. Before anyone knew the true gravity of the problems a merger had been arranged with another mutual, Friends Provident, and a crisis was averted. Everything was done behind the scenes by the Department of Trade & Industry; it was a deal that worked. The alternative was almost certainly collapse and serious loss to all policyholders.

A few years later in the early 1990s we saw what happens when the regulator sits on its backside as Municipal Mutual ran into choppy waters because of a mixture of ill-advised overseas expansion and downright poor underwriting. Although there were other insurers prepared to step in and bail it out by taking it under their wing, the DTI did nothing and Municipal Mutual collapsed. This was a very firm nail in the coffin of the DTI's regulatory role.

Mervyn King's plea to be allowed to act quickly and be freed of all the burdens of transparency that have been imposed in recent years is a plea worth very serious consideration.

David Worsfold, Secretary, All Party Group on Insurance and Financial Service.