UK: Bank of England says fundamental reform of financial regulation required

Ahead of the HM Treasury white paper on financial regulation reform, the Bank of England has published issue 25 of its bi-annual Financial Stability Report in which it identifies five areas where reform is needed. These are explained in section 3, which begins:

The financial system should be capable of absorbing shocks from the economy and from financial markets rather than generating them. It also needs to be much better able to support economic activity on a sustainable basis, without relying on large-scale publicly funded support to weather shocks. This will require fundamental changes to the way the financial sector is regulated, supervised and manages its own affairs".

The five areas identified are: [1] stronger market discipline; [2] greater self-insurance (financial institutions' own resources should be the first line of defence against financial pressures); [3] improved management of risks arising from interactions among firms and with the real economy; [4] banks should not be too big or complex (the size and structure of the financial system needs to be compatible with maintaining financial stability); and [5] clear principles for public safety nets.