Darling Must Restore Consumer Confidence
Darling recently told MPs that he is giving the FSA more powers to protect consumers savings, but not at the risk of over-regulating the financial industry.
Three new measures will be given to the FSA to protect consumers in the event of another Northern Rock crisis. The FSA will have the power to access information needed to assess a troubled bank's liquidity position, to seize and protect customers' cash if the bank fails, and to step in at crucial times if troubled banks are requesting emergency loans from the BoE.
The restoration of consumer confidence is a key concern for Martin Bamford, joint managing director at IFA Informed Choice, who has felt the effects of the Northern Rock fallout.
"The Northern Rock crisis exposed a gaping hole in the tripartite system and its response mechanisms. It meant we got a lot of phone calls from clients who were worried that there would next be a run on other banks," he recalls.
"This has quieted down a bit now, but the most important thing is for the government to take steps to restore customer confidence. We're not averse to any changes to the system that could improve this and would like to see more preventative measures to make it less likely that banks go to the wall in the first place."
IFA Keith Churchouse, director of Churchouse Financial Planning, shared this experience. "We advised our clients not to panic, but there was a stampede mentality, created by the crisis and how it was handled, which meant that people were determined to get themselves out of what they perceived to be a bad financial position, when in some cases it might not have been."
Churchouse does not agree that Darling's plan is a cure for the problem but does agree that restoring consumer confidence is vital. He said: "Giving additional powers to the FSA is a sensible decision if it improves consumer confidence, but I do not believe it will make much difference," he says.
Published on January 28, 2008
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