By Sean Farrell, Financial Editor
Monday, 3 March 2008
The House of Commons Treasury Select Committee has criticised banks for ignoring warnings about risky lending, and hit out at regulators for not making sure that lenders listened to their concerns.
In its second report into the causes and lessons of the market turmoil, the committee said the system for regulator warnings was “deficient” and demanded it be strengthened to ensure that banks give proper consideration to regulators’ warnings.
In evidence to the committee, the Governor of the Bank of England, Mervyn King, along with the chiefs of the Financial Services Authority, said they had given banks repeated warnings in speeches and reports in the first half of last year. The regulators had cautioned that banks were lending too freely and were over-dependent on abundant liquidity, using new credit products to unload risk.
Mr King blamed “hubris” within financial institutions for their lack of action, but the committee said it was not enough for the regulators to make speeches and hope someone would listen.
The MPs said the regulators should send a short letter to institutions highlighting major concerns to be discussed at board level. The Bank and the FSA should also require confirmation that the risks had been discussed and publish commentaries on the responses, the committee said.