Darling Rejects FSA Call for Action to Curb ‘Useless’ Banks

By Gonzalo Vina

Sept. 4 (Bloomberg) -- U.K. Chancellor of the Exchequer Alistair Darling dismissed calls from Financial Services Authority Chairman Adair Turner to take action against parts of the banking industry that are “socially useless.”

It is not the job of governments to decide which elements of commercial activity are of wider social value, Darling said in a British Broadcasting Corp. radio interview today.

“You get into huge difficulties if you draw up a list of what’s useful and what’s useless in banking or indeed anything else because you are applying subjective judgments,” Darling said. “Where do you draw the line? ”

Turner last month said that the financial sector is “swollen” and proposed a global “Tobin Tax” on financial transactions to redistribute bank profits to the poor and to “public goods” like fighting climate change.

His suggestion was quickly dismissed by U.S. economist Henry Kaufman, Harvard University history professor Niall Ferguson and former Bank of England policy makers Willem Buiter and Richard Lambert. The Treasury said “taxation is a matter for the chancellor.”

The Conservative opposition has pledged to dismantle the FSA and return banking supervision to the central bank if it wins the next general election, due by June at the latest.

In a Prospect magazine article, Turner said complex financial products were of “very dubious social value” and proposed governments look at ways of discouraging their use.

Not the Same

“Clearly, not all innovation should be treated in the same category as the innovation of either a new pharmaceutical drug or a new retail format,” Turner wrote. “I think that some of it is socially useless activity.”

Turner had expressed views on taxes before. He said last month that the FSA is considering whether it could penalize banks that have tax-avoidance programs, even if primary enforcement of tax matters comes from the Treasury’s Revenue and Customs arm.

The government has endorsed other proposals made by Turner in March to overhaul regulation, including getting banks to put aside more capital.

Darling said he wants agreement among Group of 20 finance ministers, who meet in London today, for tougher rules to police banks and rein in bonuses.

He conceded bankers may leave the U.K. and that this would be a price worth paying as long as the right rules were in place to prevent a repeat of the excessive risk-taking that led to the worst financial crisis since the Great Depression.

“We have do decide what’s right and what’s appropriate, and if people don’t like it they could potentially go,” Darling said. “My point is, it is not actually in our interest for people to go offshore which is why we need international agreement.”

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net