UK gets election fever

May 6, 2010

The UK goes to the polls today in what promises to be the tightest election for 18 years. Acres of newsprint and millions of cubic feet of hot air have been expended on all the possible outcomes: from an outright Conservative majority in the House of Commons, to a Labour-Liberal Democrat coalition.
Each different permutation of power means a different path for UK policy on regulating banks, financial services and markets. Will the Liberal Democrats insist on their regulatory policy as the price for their participation in a coalition with the Conservatives or Labour? Could a minority Conservative government force through its plan to blow apart the tripartite regulatory regime?
Here’s a reminder of the policies of the different parties:

   Conservatives: Say they will put a levy on banks and will do so unilaterally if they cannot get international agreement.
   Labour:  Are looking for a globally agreed levy on financial services.
   Liberal Democrats: Aim to raise over 2 billion pounds a year from a levy, requiring banks to pay for financial support they have received.

   Conservatives:  Pledge to abolish the Financial Services Authority. The Bank of England would be in sole charge of bank regulation and the government will seek an international agreement preventing retail banks from engaging in risky activities such as large-scale proprietary trading. The Consumer Protection Agency would  take on the FSA’s consumer protection role. The sale of government bank stakes would be used to boost competition and offer a “people’s bank bonus”.
   Labour:  Wants to make the FSA responsible for the regulation of all mortgages and work with international partners to require all banks to hold more and better quality capital. The new Council for Financial Stability would monitor and address asset bubbles and financial imbalances. To boost competition, it would break up the banks in which government has controlling stakes.
   Liberal Democrats:  Would split up banks to insulate retail banking from investment risks ,  and work with EU partners for stricter international regulation. They also propose maximum interest rates for credit cards and store cards,  and to turn Northern Rock into a mutual building society.

   Labour: Wants a “super-majority” of two-thirds of shareholders to back any takeover bid and to introduce a public-interest test for takeovers of infrastructure and utility companies. The case for limiting votes on M&A deals to those on the shareholder register prior to the bid should be examined.
   Liberal Democrats: Want public-interest tests on deals and proposing that they should be subject to approval by long-term shareholders.
   Conservatives: No mention of M&A law in their manifesto although business spokesman Ken Clarke has told the Financial Times that Labour plans are “populist nonsense” and that his party would seek to limit government intervention in business.
   Conservatives:  Would empower the Bank of England to crack down on risky bonus arrangements
   Labour:  Want to give the Financial Services Authority (FSA) additional powers to constrain executive remuneration where it is a source of risk and instability. Would  also require banks to put remuneration policies to shareholders for explicit approval.
   Liberal Democrats:  Pledge to ensure the bonus system can never again encourage banks to behave in a way that puts the financial system at risk or rewards failure.

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