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  • Banking reform 'largely cosmetic'

    In its report on the banking crisis, the committee says that responsibility for strategic decisions and action remains "a muddle".
    The report also says that the Financial Services Authority (FSA) "failed spectacularly" in supervising banks.
    The FSA said it has "changed radically" since an internal review in 2008.
    Earlier this month, Chancellor Alistair Darling said banks would face tougher regulation and consumers would get more protection.
    The reforms are specifically designed to try to prevent the current financial crisis happening again.
    The most important parts of the report relate to ... the best ways of shrinking banks individually and collectively so that they can no longer hold the taxpayer to ransom
    Robert Peston, BBC business editor
    Read Robert's blog
    But the plans have been criticised for not going far enough.
    For example, the current tripartite system, where the Bank of England, the Treasury and the FSA oversee the financial system, would remain intact.
    The Tories want to abolish the system and hand more power to the Bank of England.
    'Extremely perturbed'
    The Treasury Committee report, entitled Banking Crisis: Regulation and Supervision, does not advocate "substantial change" to the tripartite system.
    Where responsibility lies for strategic decisions and executive action was, and remains, a muddle
    Treasury Select Committee
    But it does criticise the government's reform plans.
    The report "considers the reforms to the institutional structure of the Tripartite Committee to be largely cosmetic. Merely rebranding the committee will do little in itself".
    The real problem lies in the fact that responsibilities are not properly allocated, it argues.
    "Where responsibility lies for strategic decisions and executive action was, and remains, a muddle," it says.
    It also highlights a lack of co-ordination and admits to being "extremely perturbed" by evidence from Mervyn King, Governor of the Bank of England, that he had "no idea" of what the government's plans for reform were.
    John McFall, the chairman of the Treasury Select Committee, said: "Change and co-ordination are needed to clarify responsibilities."
    'Develop teeth'
    The report also criticised the FSA's response to the crisis.
    We should not rule out more drastic action, such as forcibly shrinking the banks or separating out the riskier functions
    John McFall, chairman of the Treasury Select Committee
    "By any measure, the FSA has failed spectacularly in its supervision of the banking sector," says Mr McFall.
    But the he does acknowledge that the authority has "already begun to rectify its mistakes" and is now "moving in the right direction".
    The committee says the body must be strong enough to stand up to the vested interests of the City.
    It must "develop sufficient teeth to be able to go against the tide in the future and take unpopular decisions", says Mr McFall.
    Responding to the report's findings, the FSA says it has "changed radically" since early 2008, and has "identified and rectified its historic mistakes".
    'Drastic action'
    Finally, the report argues that the government must ensure that no bank is too big to fail.
    The government has bailed out Northern Rock, Royal Bank of Scotland and Lloyds Banking Group, arguing that letting any of them fail would threaten the entire financial system.
    The report says that no bank should be allowed to take risky bets in the knowledge that it will be bailed out by the government should those bets go wrong.
    "Tweaking the capital requirements to prevent this happening may work, but we should not rule out more drastic action, such as forcibly shrinking the banks or separating out the riskier functions," says Mr McFall.
    The report even suggests that this "market failure" be addressed by a "tax on size".
    The committee also argues that prohibiting deposit-taking banks from making risky investments should not be ruled out at this stage.

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  • California settles budget dispute

    Mr Schwarzenegger said the plan would include $15bn of spending cuts and no significant tax increases.
    Legislators said they were hoping to vote on the plan on Thursday.
    Mr Schwarzenegger declared a fiscal emergency earlier this month after legislators missed a deadline to agree a budget for the coming financial year.
    Amid a protracted fiscal crisis, the office of the state controller has been sending promissory notes, or IOUs, to thousands of contractors and vendors providing state services.
    Monday's deal came after more than two weeks of intense negotiations.
    "We are very happy to have a basic agreement," Mr Schwarzenegger said as he announced the plan.
    California's lawmakers approved a budget package in February that was designed to plug the state's deficit until the summer of 2010.
    But the recession has sharply reduced state revenues, making further measures necessary.
    Along with the spending cuts, the plan proposes to raise money by borrowing from local government, moving funds from other government accounts and accelerating the collection of some taxes.
    California's assembly speaker, Democrat Karen Bass, said the plan protected basic social services that her party had sought to preserve.

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  • US economy begins 'to stabilise'

    The economy "continued to be weak going into the summer", the report said, highlighting sluggish retail activity and weak labour markets.
    But the pace of decline moderated over the last month, it added.
    The report failed to lift stock markets after earlier figures showed an unexpected fall in orders for US manufactured goods.
    "Most districts indicated that the pace of decline has moderated since the last report or that activity has begun to stabilise, albeit at a low level," the report said.
    Most districts indicated that labour markets remained "extremely soft", with wages being frozen or cut, it added.
    The report also highlighted the fact there had been no improvement in bank lending.
    This is despite massive injections of cash into the financial system by the US government.
    On a more positive note, it reported that a number of districts had seen signs of improvement in the residential property market.
    Earlier on Wednesday, official figures showed that orders for durable goods from US factories fell by 2.5%, a much bigger fall than had been expected.
    The Beige Book, compiled eight times a year and used to help set interest rates, is based on a survey of business views from around the US.

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  • IMF boosts lending to poor states

    The IMF said it will boost lending by up to $17bn (£10.4bn) between now and 2014 and suspend interest on some loans to low income countries until 2011.
    It plans to sell some of its gold reserves to raise funds for the loans.
    The measures are partly in response to calls from the G20 countries at their April summit for greater lending.
    "This is an unprecedented scaling up of IMF support for the poorest countries, in sub-Saharan Africa and all over the world," said IMF head Dominique Strauss-Kahn.
    The measures "should prevent millions of people from falling into poverty," he added.
    The fund said the global crisis was jeopardising the "remarkable economic progress" made by many poorer countries.
    The new loans would not only help them weather the downturn, but also help them in the longer term battle against poverty, it said.
    It added that $8bn would be made available over the next two years, more than the $6bn called for by the G20.
    Earlier this month, the IMF agreed $2.5bn loan with Sri Lanka and a $600m loan with Ghana.

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