Bank mounts defence of supervisory role

The Bank of England gave a vigorous defence yesterday of its role as supervisor of the banking sector, saying now is not the time to risk radical reform of regulation and supervision.

The Bank's record as a supervisor compares favourably with countries such as the US and Japan, the Bank argued in a concerted effort to rebut the wave of criticism unleashed by the Barings crisis.

The Labour Party is considering stripping the Bank of its supervisory role and creating an independent Banking Commission, while Treasury thinking also favours consolidating supervision and regulation into an integrated, central City body.

"The net benefits of leaving the supervision of banks with the Bank greatly outweigh the risks of experimenting with radical institutional change, especially at this uncertain point in the evolution of the world's financial system," wrote Brian Quinn, the Bank's executive director in charge of supervision, in an article for The Scottish Banker.

He calculated the cost to the banking system of bank failures in the UK measured by payments from the Deposit Protection Fund at pounds 144m, some of which could still be recovered. Against this, the cost of failed banks to the Federal Deposit Insurance Corporation in the US is estimated at pounds 20bn over the past decade, Mr Quinn wrote.

In Japan the current banking crisis has in effect exhausted the Deposit Insurance Fund which stood at pounds 5bn only two years ago. "However it is measured, the Bank's track record as a banking supervisor stands comparison with other countries," he wrote.