UK consolidates Bank of England's bank supervision role

By Huw Jones LONDON (Reuters) - Britain's government unveiled plans on Tuesday to centralise financial regulation further at the Bank of England and reinforce its own powers to shield taxpayers from having to prop up failing lenders in future. British finance minister George Osborne published a consultation paper to reform the regulatory system just two years after a shake-up aimed at plugging gaps highlighted by a "light touch" regulatory regime that failed to spot the 2007-09 financial crisis coming. The government proposed making the Prudential Regulation Authority (PRA) an integral part of the Bank, ending its status as a subsidiary with its own board. The PRA makes sure that banks like HSBC , Lloyds , Barclays and Royal Bank of Scotland hold enough capital and do not take on too much risk. A new Prudential Regulation Committee (PRC) would sit alongside the central bank's Monetary Policy Committee, which sets interest rates, and Financial Policy Committee (FPC), which sets the direction for regulation. "Ensuring the Bank is well positioned to fulfil its vital role of overseeing monetary policy and financial stability is a key part of the government's long term economic plan," Osborne said in his announcement. The government said the new PRC would retain the PRA's freedom to make rules, policies and supervisory decisions. "The PRA name and brand will remain unchanged," the government said in its consultation paper. The government also said it was looking for the power to re-define the role of the BoE's deputy governors and other top officials without getting detailed parliamentary approval. Financial lawyers said the changes formalise the BoE's central role in regulation, potentially partly sidelining the standalone Financial Conduct Authority, which was set up alongside the PRA in 2013. "It really tends to emphasise the extent to which the Bank is essentially in control now of the regulatory agenda for banks and insurers," said Michael McKee, a lawyer at DLA Piper. "All of this is more consistent with a more joined-up approach between the Bank and the government. The financial crisis has emphasised more strongly the role of central banks, typically at the expense of the other regulators like the FCA," McKee said. Etay Katz, a lawyer at Allen & Overy, said the changes would increase the influence other parts of the BoE have over prudential regulation. Osborne's consultation also sets out in more detail how the Treasury and BoE cooperate to avoid the need to use public money when a bank gets into trouble. The BoE will have to give the Treasury enough information in a timely way for it to assess whether there a risk exists that taxpayers might be called upon. The Treasury would have the power to "request specific regulatory information", and require the BoE to provide drafts two weeks in advance of any announcement of changes to rules on how banks are wound up in a crisis. (Editing by Catherine Evans)