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Leadsom Andrea Andrea Leadsom is MP for South Northamptonshire and a member of the Treasury Select Committee.

I’m a fan of Mervyn King, and in particular I agree with his view that the banks haven’t changed their ways at all, leaving the world vulnerable to another financial crisis. But, his recent comments about the banks raise a significant “philosophical” issue over accountability. Is it for him to be saying what should be done to solve the problem?

In my view the precedent set by the Government last year in granting a veto to the Treasury Select Committee over appointments to, and dismissals from, the Office for Budget Responsibility should be followed for other appointments.

Cross-party Select Committees have the necessary political balance and expertise to evaluate appointments and dismissals and would provide valuable evidence of public scrutiny. In the event that a Minister and a Committee continue to disagree, the final decision should be taken by the House.

The appointment of the Governor of the Bank of England would fall firmly into this category. Mervyn King was appointed in 2003, was Chief Economist and Executive Director of the Bank from 1991-98, founder member of the MPC from 1997 and Chairman of that Committee since 2003. When he appeared before the Treasury Select Committee last week he told us that he was surprised that people are not even angrier with the banks. Now that the size of recently awarded bonuses have been revealed as a result of Project Merlin he can only be even more surprised.


At the weekend he said that the inbalances in the banking system are starting to grow again. He called for banks to be broken up into High Street and investment banks which he sees as the solution to protect customers’ money and prevent it being exposed to risk on the markets. But, of course, this does not address the issue of ‘too big to fail’ or the moral hazard which is prevalent and blatantly flaunted within the industry.

We saw Mr King choose his words carefully at the Select Committee as he glanced at his pocket watch on the table in front of him. Of course, he is a man who calculates and appreciates the effect of his pronouncements. I think it is legitimate to ask why he has chosen now, two years after the crisis, to speak out. After all he has been in charge at the Bank of England since 2003: surely the buck should stop with him and if he held these views he should have expressed them long ago.

No doubt it is no coincidence that Sir John Vickers’ Independent Commission on Banking is intending to publish its interim report to the Government next month. This may occur during Parliamentary Recess but even though it is not a final report, clear markers for the likely final recommendations will be set out.

We have heard that a splitting up of banking activities along the lines suggested by Mr King is a likely suggestion. If this recommendation materializes I think it will be a totally inadequate response to the terrible crisis we have suffered and continue to endure. Splitting up the banks along rigid lines will not prevent the institutions themselves being too big to fail. It does not go nearly far enough.

What is needed is a flexible case by case investigation of individual banks and their various multiple complex activities to ensure the triumph of free market principles. There must be the possibility of entry for new participants and an orderly exit for those that fail. Only then with a truly competitive banking industry will the taxpayer be protected from the prospect of having to bail out institutions which cannot be allowed to fail.

The proposed Financial Conduct Authority will be given a ‘competition’ objective, but what isn’t clear is how it will fulfill this objective alongside its main role of ensuring orderly markets.   Unless regulation is to continue to trump competition, the FCA will need to have a specific responsibility for promoting competition – it will need powers to remove barriers to entry, and to investigate and resolve financial institutions that are too big to fail, or have a too dominant market share.  

11 comments for: Andrea Leadsom MP: We need more competition in the banking sector

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