Wednesday, 25 July 2012

UK: 'Banking at the crossroads' - a speech by Lord Turner

Lord Turner, the chairman of the Financial Services Authority, delivered a speech yesterday titled "Banking at the cross-roads: Where do we go from here?": see here. In a wide ranging speech, Lord Turner said that to restore trust in banking a five fold approach was required:
  • Better prudential rules and new macro-prudential policy approaches.
  • Structural change – the importance of the Vickers Commission recommendations.
  • Better, more intense and more robust conduct supervision and enforcement, but recognising also their limitations.
  • Action by the leadership of banks to improve culture and values – a difficult area but a vital one.
  • And finally, some recognition by regulators, politicians, consumer groups and the general public of the complexity of the challenge and the constraints which banks face. 
There is much of interest in the speech. Something that caught my eye concerns the extent to which regulators should have regard to competitiveness issues in exercising their functions. This is particularly important because the House of Lords will soon consider amendments to the Financial Services Bill which would, for example, require the new Prudential Regulation Authority, in discharging its general functions, to have regard to the desirability of promoting the competitive position of the UK financial services industry. Lord Turner made clear his view: "I do not believe it is the role of the regulator itself to have responsibility to promote the competitiveness of the City, because the moment you introduce that requirement, you create a confusion of objectives and open the door to regulatory arbitrage".

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