Jury is out on who should regulate banks, says Hunt

Northern Rock and recent regulatory problems mean the jury is still out as to who should regulate the banking sector, Lord Hunt of the Wirral said.

Referring to recent events, Lord Hunt of the Wirral said the general view was the Bank of England understood banks better than the FSA, however he stated he was waiting for the Treasury Select Committee report before he reached any conclusion.

He said: "Several of my parliamentary colleagues think that banks should be regulated by the Bank, but I think that the jury is still out.

"The most important thing is to have effective regulation and the FSA does have a case to answer on the issue of bank regulation."

Meanwhile, Justin Urquhart Stewart, marketing director for Seven Investment Management, said the Bank of England had the regulatory tools to do a better job than the FSA.

He said: "The Bank has a better single control and it knows the risks in the system. It is not that the FSA cannot do it, it does not have the tools to do it, and we nearly saw the consequences of that again with Bradford & Bingley."

He added that banks should be open about the rates that they lend at to bring down Libor.

However, Bob Bennet the former financial director at Northern Rock said that he did not believe banks were better regulated by the Bank of England as the FSA had a wider remit.

He said: "The Bank needs to be focused on macro-financial perspectives so if it has two separate functions - a black hole could slip in between.

"The FSA is doing a better job than people give it credit for. If you look at the pace of regulatory change from the millennium onwards, I think that the regulator has done a very good job. It is unfortunate that you have a set of circumstances such as the US sub-prime crisis, that led to the credit crunch, which impacted on Northern Rock.

"With Northern Rock someone had to clearly direct who was responsible for decision-making and that is the bit that needs to be cleared up. I am not in favour of putting the work of the FSA back into the Bank of England, I want both parties to have a clearer role."