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A fundamental crisis of credibility

Simon Nixon

Wednesday, 2nd April 2008

Simon Nixon says loss of authority at the Bank and the Treasury matter even more than the failings of the FSA

True, Labour is not solely to blame for the crisis in Britain’s financial authorities. The prestige of the public sector had been on the wane at least since the 1980s, when the rewards on offer in the City first began to lure the best brains into finance. The politicisation of the Treasury began in earnest under Nigel Lawson, according to former Treasury officials. The long boom may also have undermined the appeal of a career in officialdom — without a regular supply of crises, the work is routine and it’s hard to make a name for oneself. But Labour is, at the very least, guilty of extraordinary complacency — and the urgent question now is how to restore institutional credibility.

As the FSA has acknowledged, the answer has to start with hiring the right people. But that’s not going to be straightforward. In the days when the Square Mile was self-regulating, ambitious City folk would willingly spend time as a regulator — as they still do in the US. But City high-fliers no longer think a stint at the Treasury, Bank or FSA adds lustre to a CV. Perhaps the City has simply become too global and too complex for Britain’s parochial public sector. Many of the City people with high-level expertise are not British. Yet without an influx of talented insiders who understand the complexity of modern finance, our regulators can never be fully effective. That may once have been music to the ears of the finance industry. No one thinks so now.

Simon Nixon is executive editor of breakingviews.

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