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After months of whispering, George Osbourne, the shadow chancellor, has formally proposed the abolition of the Financial Services Authority, the independent body that regulates the UK’s financial services industry.

If the Conservatives win the next general election, as seems likely, supervision of banks and other financial institutions will flip back to the Bank of England, ending the division of responsibilities put in place by Gordon Brown in 1997.

The FSA’s other job, helping retail customers get a fair deal from the financial services industry, would be transferred to a new body, the Consumer Protection Agency.

There are probably advantages in uniting the operation of monetary policy with the regulation of the banking system. But much time can be wasted debating the optimal institutional architecture for little practical gain.

Would the Conservative’s new financial policy committee, sitting solely within the Bank and dominated by governor Mervyn King, be better at detecting bubbles than the government’s proposed Council for Financial Stability, a beefed-up version of the existing tripartite standing committee that brings together the FSA, the Bank and the Treasury?

Monty Python fans may be hearing too many echoes of the bickering between the People’s Front of Judea and the Judean People’s Front to be convinced either way.

Two things are sure. First, neither the opposition nor government proposal will live up to its advance billing because all regulatory systems will be imperfect. In general, as a former senior member of the global central banking establishment recently put it, macro-prudential regulation “gives rubbish a bad name”.

Second, the framework for regulation of the City of London, one of the world’s pre-eminent financial centres, will remain bitterly contested for another year, perhaps longer. Hector Sants, the FSA chief executive, and Lord Turner, chairman, meanwhile, have been cut off at the knees.

Their authority will ebb away the likelier a Conservative victory becomes. This is a poor outcome for the City of London.

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