Two world wars, several revolutions, as well as global economic recessions and financial crises have resulted in present alliances – which could possibly not have otherwise been anticipated or predicted. This chapter highlights major alliances that have arisen over the decades – both economically, regionally and for purposes of security and defense. In recent years, the United States has undertaken a policing role – a role which it has performed brilliantly well – albeit with unnecessary and undue burden left on its shoulders by other allies. This being reflected in its trade and budget deficits – not only consequential from its involvement in the Iraq War (the Middle East), but also its NATO contributions. Security and defense also played a huge role in the outcome of the 2016 Presidential elections – with the eventual realization that depleted resources, the emergence of very powerful allies with sophisticated weaponry and facilities, did not justify the defense of previously and currently existing “policing obligations.”
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This section is aimed at highlighting the importance of the transfer of bank supervision back to the Bank of England – as essential steps and reforms aimed at fostering further progress and effective regulation and supervision of the financial services sector were made in the aftermath of the 2008 Financial Crisis. It also highlights shortcomings which exist and need to be addressed if the Bank of England is to perform its tasks efficiently as well as regain the momentum and advantages it had acquired before its supervisory powers were transferred to the Financial Services Authority.1
As highlighted in the publications and the book The Role of the External Auditor in Bank Regulation and Supervision,2 the Financial Services Authority (FSA)'s statutory objective of maintaining confidence in the financial system is one that gave rise to concern. This largely being as a result of the reduced role which the Financial Services Authority’s predecessor, the Bank of England, assumed in the supervisory process since 1997. Principle 19 of the Basel Core Principles highlights the importance of supervisors in acquiring and sustaining a thorough knowledge not only of individual banks and banking groups being regulated, but also of the banking system in its entirety. Such supervisory role is considered to be a role which in my opinion, the Bank of England would have carried out more effectively than the then designated supervisor, the Financial Services Authority (FSA).
The FSA assumed responsibility for the regulatory functions of the Supervision and Surveillance Division of the Bank of England and these functions are those functions under the Banking Act 1987. The Banking Act 1987 chapter 22, Part 1 section 1(1) gave to the Bank of England powers and the duty to supervise banks. Other banking supervisory functions which the Bank of England Act 19983 transferred to the FSA are the functions of the Bank of England under the Banking Coordination Regulations 1992 and section 101(4) of the Building Societies Act 1986. Non-banking supervision functions under listing of money market institutions and functions relating to listing of persons providing settlement arrangements were also transferred.4
The effectiveness of the arrangement (whereby the FSA sought to achieve the objective of maintaining confidence in the financial system and the Bank of England continued responsibility for overall stability of the financial system) in dealing with systemic risks, was put to the test following the collapse of Northern Rock. The major criticism of the crisis at Northern Rock related to the tripartite arrangement between the Bank of England, the FSA and the Treasury. The apparent lack of clarity as regards the allocation of responsibilities between these authorities was revealed following the “buck-passing” and failure by appropriate authorities to promptly spot problems at Northern Rock. The Northern Rock crisis highlighted problems and flaws inherent in the tripartite arrangement between the Treasury, the Financial Services Authority and the Bank of England for dealing with financial stability (see also Buiter, 2007).
“Responsibility for the supervision of securities settlement systems and central counterparties will transfer to the Bank of England (the Bank) from the Financial Services Authority (FSA) following the enactment of the Financial Services Bill. The transfer of responsibility is currently expected to take effect on 1 April 2013.” (Bank of England, 2012)
Hence, the Bank of England has been involved in (but not responsible for) the bank supervisory process through the process whereby it exchanges information with the FSA for bank supervisory purposes. In that sense, it still makes vital contribution to the regulatory and supervisory process.