As I have discussed here and elsewhere, the UK's Financial Services Authority has been widely viewed as a Dead Man Walking for about a year. In July 2009, the Tories, expected to win the national election, laid out their plan for “sound banking that will lead the British economy” and this plan did not include the FSA. Instead, the Tories said, they would abolish the FSA and consolidate power under the Bank of England.

Whether by coincidence or not (and many UK observers believe the answer is "not"), the FSA began an unprecedented barrage of enforcement actions in early 2009. One senior FSA official even admitted in an interview with the Financial Times that the FSA's activity was at least partially motivated by the looming election. “This comes all the way from the chairman,” the official was quoted as saying. “It’s clear that if we can make waves now, if we can make a lot of noise, then post-election a Tory government would find it difficult to disband a successful organization.”

It turns out, however, that another unexpected twist of fate appears to have saved the FSA. On May 6, the UK national election results failed to provide a majority of votes for any of the three parties. This led the Tories to enter into a five-year coalition deal with the Liberal Democrats--the first coalition government in 65 years--with one of the points of the deal being the survival of the FSA. Specifically, the FT reports, while the Bank will be given "macro-prudential control" over systemic risk in the economy, the FSA will still regulate individual banks.

Proponents of the FSA were quite pleased. Cass Business School lecturer Alistair Milne told Bloomberg that “abolishing the FSA looked like a really stupid idea" anyway and "this is an example where a coalition government works well. It’s definitely sensible to give one institution a role for looking at the big picture." Howard Davies, the FSA’s first chief executive officer, also stated in a speech yesterday that “This is as close as George Osborne [ the new Tory chancellor] is going to get to admitting that his pre-election plan to scrap the FSA was ridiculous."