LONDON: Britain's finance ministry will have new powers to order the Bank of England to pump money into the financial system in any future banking crisis.
UK finance minister George Osborne published a law on Friday to radically reform the way Britain's financial system is regulated, and set out who has ultimate authority in a crisis.
"When taxpayers' money is at risk in a crisis this legislation gives the Chancellor the power to direct the Bank of England to act," Osborne said in a speech to the world's political and financial elite in Davos, Switzerland.
"For the first time it will allow the Chancellor to direct specific liquidity interventions to assist individual entities, the special resolution regime for banks, and general interventions to preserve stability as long as the Government is willing to take responsibility for the action and take the resulting risk on its balance sheet."
The new law, an attempt to draw a line under the regulatory failings that forced taxpayers to stump up hundreds of billions of pounds to shore up the banking sector in 2008, scraps the Financial Services Authority from 2013 and hands power to supervise banks and insurers to the Bank of England.
A major failure of the 15-year-old "tri-partite" system of financial regulation at the time of the 2008 financial crisis was a lack of clear lines of responsibility between the FSA, the BoE and the Treasury, which shared the role.
"There will be no ambiguity about who is in charge," Osborne said.
The finance ministry will have the power to direct the BoE only "if the direction is necessary to resolve or reduce a serious threat to the stability of the financial system of the United Kingdom", according to the Financial Services Bill.
Alistair Darling, finance minister during the 2008 crisis, wrote in a book last year of his frustration at not being able to order the Bank to do what he felt was right. "The Bank was independent and the Governor knew it. We did not agree on what to do," Darling wrote.
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