GORDON Brown promised last night to crack down on the excesses of the City with a raft of new reforms designed to prevent Banks from running out of control.
The Prime Minister is to hand vast new powers to the Financial Services Authority (FSA) so it can outlaw inappropriate bonuses for City traders, and take boardroom directors to task for taking on excessive risk.
It follows growing criticism of the
behaviour of the banks and hedge funds during the boom years. The funds stand accused of exacerbating the financial crisis by taking short-term bets with little regard for underlying value.
The new measures will be unveiled by the FSA chairman, Lord Turner, later this week who has already warned that a "revolution" in regulation is needed to prevent a repeat of the financial crisis that has sent the world economy into recession.
Writing for a Sunday newspaper, the Prime Minister said it was time to "reshape" regulation in co-ordination with leading economies across the world. He says: "The world has changed beyond recognition not just in the past 10 years, but in the past 10 months, too. Our system for financial regulation must change with it. This means a new tougher approach, addressing the new challenges, with a reformed, tougher and better-resourced FSA at its core."
Among the measures to be introduced are plans to supervise hedge funds and investment banks – the so-called "shadow banking sector" for the first time. The FSA will also be able to hold boardroom directors to account for the risks they take. Brown also wants new international co-operation rules on ending rewards for "short- termism" and introducing new pay and bonus structures.
The Authority will also have new powers to monitor an institution's financial health to ensure it cannot "toxify" the whole financial system.
Brown is sure to face criticism of shutting the stable door too late, but he continues to argue that the old system – which he set up – was right for its time. He said: "While the 1997 supervisory system was right for the circumstances we faced then, it is now clear that the detailed regulation of financial markets across the world did not keep up with the pace of change in the global economy."
But the former Archbishop of Canterbury, Lord Carey, said he could see why people were calling for the PM to say "sorry" for the crisis. The peer said: "None of us is perfect and all of us make mistakes. The sign of a confident, great man is the willingness to acknowledge failure."
He added: "A church minister's son, Gordon would know that 'confession' is but the prelude to the restoration of relationships with Almighty God; it works similarly in politics, as it does in all walks of life.
"Would this really be the kiss of death? Well, he would certainly be ribbed by the Opposition and some commentators might have a field day. But I believe he would bounce back the stronger for a willingness to admit to the inadvertent errors of the past."
Yesterday, Brown was in talks with German Chancellor Angela Merkel as he steps up his separate efforts to persuade other wealthy nations to pour further billions into the stagnant global economy. It came as finance ministers from the G20 group of nations met in Sussex to discuss a joint strategy.
But Merkel appeared to strike a more cautious note over ambitious plans to do so, amid warnings that the plans need to be assessed before any further action is taken. Merkel said any talk of further action was premature. She said Germany had already committed itself to a fiscal stimulus of 4.2% of GDP.
"Nothing has actually taken effect on the ground," she said. "If we want to strengthen the effect of such packages we will simply have to implement them first."
Shadow Chancellor George Osborne claimed that Brown's efforts to secure a global deal on the economy were unravelling, amid growing fears about rising debt levels.
