Page last updated at 09:59 GMT, Wednesday, 17 June 2009 10:59 UK

Banking regulation 'not to blame'

Alistair Darling
Mr Darling will say that banks must focus on long-term wealth creation

Chancellor Alistair Darling does not plan fundamental reform of the structure of the system that regulates UK financial institutions.

Mr Darling has said that the current regulatory system is not to blame for the credit crunch, blaming instead the bosses of financial institutions.

He wants to improve the quality of the regulators and those who run banks.

There is currently a tripartite system, with the Treasury, Bank of England and Financial Services Authority (FSA).

The system has been widely criticised for failing to prevent excessive risk taking at banks.

The tripartite system was introduced by Prime Minister Gordon Brown when he was chancellor.

'More intrusive'

Mr Darling said that regulation overall still needed to be improved.


"It needs to be more intrusive and needs to ask harder questions," he told the BBC.

But he added that the real problems were in boardrooms.

"Too many people did not understand the risks to which they were being exposed," he said.

"You've got to make sure you've got the right people there to make the right judgements.

Interconnected firms

The US administration is due to unveil sweeping changes to the financial system.

Mr Darling does not believe that the tripartite model is to blame
Robert Peston, BBC business editor

On Wednesday, President Barack Obama's government will announce new powers for the central bank of the US, the Federal Reserve, to oversee the relationships between financial institutions.

In future, the Fed will require interconnected firms to hold more capital in case of a crisis, to help avoid a repetition of events last year when the collapse of investment bank Lehman Brothers threatened to undermine the financial system.

Mr Darling told the BBC that the US regulatory changes would be catching up with the reforms made in the UK 10 years ago.

'Huge price'

Mr Darling will give more details of his plans in his annual Mansion House speech later on Wednesday.

"Having stabilised the banking sector, we are faced with the challenge of building a stronger, more efficient and more resilient financial sector in the future," he will say.

"Anyone who thinks that we can carry on as if nothing has happened should think again. In every country we are paying a huge price for this crisis. Not just the financial cost but also a profound social and human cost," he will add.

But the boardroom is where the focus should be, he will argue.

"I strongly believe that the process of learning lessons has to start in the boardroom. Bank boards must have the right people, skills and experience to manage themselves effectively… their focus must be long-term wealth creation, not short-term profits."

Mr Darling also signalled a planned paper on reform of the banking industry will be much less forceful than the Treasury had originally suggested.

The paper, which is expected to be published in about a fortnight, will be a consultative green paper, rather than a policy-setting white paper.

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