27 February 2009
By Judy Hirst
The chair of the Treasury select committee, John McFall, has called for the scrutiny and regulation of the financial sector to be beefed up, to prevent a recurrence of the events that led up to the credit crunch.
He told Public Finance that recent events ‘have exposed that the Treasury has not been as fit for purpose as it should have been’ and that ‘for too long it has been second-guessing the financial services industry, rather than having real-time information on what is happening there’.
In a wide-ranging interview, he criticised the government for
‘not taking heed’ of warnings witnesses to the select committee made about the freezing up of liquidity.
Strong regulatory institutions were needed that were prepared
to ‘take the punch bowl away’ from the banks when necessary, he said.
McFall also called for more government intervention over financial sector pay and bonuses: ‘Why do we need to give bankers such massive incentives to get themselves up in the morning, when ordinary public servants have no incentive over and above their basic salary?’
In recent times, he said, the Treasury had been acting more speedily on the committee’s recommendations, for example over the state-owned bank Northern Rock.
McFall welcomed the chancellor’s decision to boost Northern Rock’s new mortgage lending by £14bn over the next two years.
He also looked forward to a further substantial fiscal stimulus in the April 22 Budget.
McFall’s comments came ahead of a series of Treasury committee hearings on the financial crisis.
PFfeb2009
