U.K. Chancellor of the Exchequer George Osborne appointed former Federal Reserve Vice Chairman Donald Kohn to a Bank of England panel set up to help prevent a repeat of the financial crisis.
Kohn was named as one of four external members of the interim Financial Policy Committee along with former Deutsche Bank AG official Michael Cohrs, former Confederation of British Industry Director General Richard Lambert and former Bank of England director Alastair Clark. They join five Bank of England officials including Governor Mervyn King plus Adair Turner and Hector Sants of the Financial Services Authority.
The government today laid out its plans for the biggest institutional overhaul since 1997, under which the FSA will be abolished and most of its powers returned to the Bank of England. Osborne pledged that the Financial Policy Committee, tasked with monitoring systemic risks, won’t hinder the economy.
“The FPC will not be able to take action which would be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the U.K. economy,” the Treasury said in a statement. Osborne said he had picked “the right people to do the job.”
The government will consult on its plans with the industry before introducing a bill in Parliament later this year, the Treasury said.
The Financial Policy Committee will aim to identify and monitor risk, check resilience of the system and monitor unsustainable levels of leverage. It will also keep an eye on credit growth and debt. It will have the power only to recommend action until its status is approved by Parliament in 2012.
Kohn, 67, who retired from the Fed on Sept. 1, served as the top monetary-policy strategist for former Fed Chairman Alan Greenspan and, as Chairman Ben S. Bernanke’s chief lieutenant, helped guide central bank efforts to stem the financial crisis, including unprecedented emergency credit programs.
Kohn joined the Fed in 1970 and was vice chairman for four years until June 2010, serving the last two months as a governor.
Cohrs, 54, was co-head of investment banking at Deutsche Bank until he retired last year after 15 years at the German lender. He previously worked for a decade at Goldman Sachs Group Inc. in New York and London. He was a member of the U.S. Presidential Task Force on Market Mechanisms known as the “Brady Commission” after the stock-market crash in October 1987. He is an American with an MBA from Harvard University.
Lambert, 66, left the CBI, the largest U.K employers’ group, last month. He was a member of the Bank of England’s Monetary Policy Committee between 2003 and 2006 and was editor of the Financial Times newspaper for 10 years before that.
Clark advised King during the financial crisis. Before that he was executive director for financial stability at the central bank for seven years.
Prudential Regulation Authority
The government consultation today also seeks views on the Prudential Regulation Authority, the body that will be responsible for overseeing all deposit-taking institutions, insurers and investment banks and effectively replaces the FSA.
Its board will be chaired by King, while FSA Chief Executive Hector Sants will run its operations and become a deputy governor for prudential regulation at the bank.
Under the plans, the FPC may be granted powers to require the new regulator to conduct stress tests on banks to monitor risks as part of an overhaul of financial supervision.
The PRA will require firms to comply “with the spirit as well as the letter” of laws to “tackle attempts by firms to circumvent the intended purpose” of the rules. Lenders may be given only “limited grounds” to appeal the decisions.
The government is also seeking the views of the financial industry on the creation of the Financial Conduct Authority, a body that will seek to protect consumers and police the integrity of markets.
Too Late for King
The almost three-year period taken to enact the legislation suggests King may not get the chance to formally exercise the powers outlined today. The bill to be introduced later this year isn’t due to take effect until 2013, when King’s second five-year term as governor expires.
The overhaul of financial regulation will give the Bank of England more power than it has ever had in its 317-year history. King and Osborne began working on the plans in June, a month after the coalition government took office.
In the May 2010 coalition agreement, the Conservatives and Liberal Democrats listed banking as their top priority after the budget and taxes, saying the existing regulatory system is “fundamentally flawed and needs to be replaced.”