U.K. Regulator Should Get Sole Bank Rescue Power, Lawmakers Say

By Mark Deen

Sept. 16 (Bloomberg) -- The Financial Services Authority should have the sole power to order a rescue of a failing bank, a panel of U.K. lawmakers recommended, countering a Bank of England bid to share the responsibility.

The authority, the U.K. banking regulator, should hold the ``trigger'' on such decisions, and the central bank should get a consultative role and the right to recommend a bank rescue, Parliament's Treasury Committee said in a report released today. The cross-party panel advice broadly backed the system proposed by Chancellor of the Exchequer Alistair Darling.

``The system we propose maintains a clear line of authority, while ensuring that the Bank of England has reason to engage with individual institutions,'' committee Chairman John McFall said in a statement.

The report is aimed at shaping legislation on bank oversight after a run on deposits at Northern Rock Plc a year ago. Darling and Prime Minister Gordon Brown are seeking to create new powers similar to those of U.S. regulators to appoint an administrator and a ``bridge bank'' to handle the assets of financial institutions in danger of bankruptcy.

Bank of England Governor Mervyn King has sought expanded powers and has questioned the effectiveness of the regulator in acting to bail out a bank.

``There is a natural reluctance of a supervisor to announce publicly that the supervisory regime hasn't been successful,'' King said April 29. He told lawmakers July 22 that he'd ``have preferred an outcome in which either the FSA or the Bank of England could have initiated the trigger'' to bail out a bank.

Lehman, Merrill

Concern about failing banks has increased as writedowns rocked the financial system, leading to yesterday's bankruptcy filing by Lehman Brothers Holdings Inc. and the purchase of Merrill Lynch & Co. by Bank of America Corp.

The lawmakers' panel also recommended that government plans to guarantee bank deposits of as much as 50,000 pounds ($89,935) be as simple as possible and implemented without delay.

``There has been much focus on whether the appropriate compensation limit should be 35,000 pounds, 50,000 pounds or 100,000 pounds,'' McFall said. ``This is irrelevant'' if the system doesn't work smoothly, he said. ``It is far more important that banks be able to identify who their insured depositors are'' and that they be able to ``process compensation claims quickly.''

To contact the reporters on this story: Mark Deen in London at markdeen@bloomberg.net