Prime Minister's question asked in the House of Commons, by Lord Cameron of Chipping Norton (Conservative). It was answered on Wednesday, 8 October 2008 on behalf of the Prime Minister.

Engagements

Question: No one wants banks to fail, but also no one wants rewards for failure. Taxpayers now have an investment, so taxpayers have an interest, and they will rightly be infuriated if they see their hard-earned money going in bonuses that are rewards for failure. The other thing that the taxpayer will expect is that everything possible will be done to improve the regulatory system. One of the problems is that there is no one in the system who is there to take an overall view of indebtedness in the economy. Will the Prime Minister look with a genuinely open mind at restoring the role of the Bank of the England—the role that it had for decades—of calling time on debt levels in the economy? The regulatory system needs not just the right rules, but strong institutions. Should not the Bank of England be restored to its proper role in this regard, so that this never happens again?

Answer: Of course under the new legislation, for which I believe there is now all-party support, the Bank of England will have a statutory role in the supervision of the system. However, I have to remind the right hon. Gentleman that when we came in in 1997, there were seven or eight separate regulators all involved in the system. We co-ordinated that within the Financial Services Authority and we led the world in that way. As for bonuses, the FSA will be responsible for issuing rules about capital adequacy to firms. It will take into account whether firms are taking excessive risk by rewarding people on the basis of short-term gains, not long-term success. So when the right hon. Gentleman asks what will be done, the answer is that on a case-by-case basis where we capitalise the banks, we will lay down conditions. As for other companies and the rest of the system, the FSA will now be in a position to regulate the capital requirements of firms according to the risk-taking that is involved. I hear what the right hon. Gentleman says about what he thinks about the irresponsibility of people in the City and some of the adjectives that have been used, but I have to remind him of what he said on the ““Andrew Marr Show””:"““What you won't hear from me this week is sort of easy, cheap lines…beating up…the market system, bashing…financiers.””"

Secondary information