LONDON — The British government Tuesday announced plans for tighter control of banks in response to the $357-million collapse last year of Johnson Matthey Bankers.
The proposed new legislation would strengthen the Bank of England's supervisory powers over large banks like Johnson Matthey, which have been operating largely on trust, under the assumption that they were acting honestly and competently.
The Johnson Matthey collapse, said a White Paper published by Chancellor of the Exchequer Nigel Lawson, revealed "serious weaknesses" in banking supervision.
New legislation will be introduced "at the earliest possible opportunity," it said.
"London's pre-eminence as a world banking center is based on freedom and probity. We are determined to preserve both," Lawson said in the White Paper, a publication that outlined the government's plans with the aim of provoking discussion while legislation is being written.
Termed 'Grossly Inadequate'
In the House of Commons, Brian Sedgemore of the opposition Labor Party clashed bitterly with Lawson, and Labor's chief economics spokesman, Roy Hattersley, said the proposals were "grossly inadequate" because they did not call for an independent supervisory body.
Sedgemore, who has made a series of charges in Parliament alleging conflicts of interest and fraud in the financial world, said Johnson Matthey had collapsed because of "wanton negligence" by the governor of the Bank of England, Robin Leigh-Pemberton.
"How can anyone place their trust in a system of supervision organized by this appalling deadbeat?" Sedgemore said.
Lawson countered that Sedgemore was "the biggest fraud so far exposed" and accused him of using a "scurrilous, McCarthyite smear campaign" to promote himself and damage London's international standing as a financial center.
The White Paper on banking is the first of two important measures expected this week in the government's effort to clean up the tarnished reputation of the London financial world, where a gentleman's word is supposed to be his bond.