Proposed reform of UK banking regulation needs more work and must take account of how British financial services interact with global markets, said the British Bankers’ Association (BBA).
In its response to the Turner review, which set out proposals to tackle the global banking crisis, the BBA welcomed the Financial Services Authority’s (FSA) broad approach but expressed concern that the impact of its suggestions needed to be considered across the piece and not in isolation. The BBA also wanted to ensure British banking was not prevented from recovering, growing and playing its full part in the UK’s economic recovery by being subject to mismatched UK and international regulation.
Key points include:
- Changes to capital and liquidity regimes: More work needs to be done on the impact of the raft of different measures under consideration on the banks’ ability to finance British businesses. Banks are already holding more capital and more needs to be done on how proposed changes could work together.
- International agreement: The FSA should not forge ahead with plans to regulate UK banking in isolation as this could damage UK competitiveness and upset cross-border services.
- European legislation: UK regulation needs to dovetail with action planned in Europe to avoid unintended consequences and the UK banking sector being caught between the two. Each of the three tripartite authorities – the Bank of England, the FSA and the Treasury – need to be engaged in the dialogue on macro-prudential measures.
- Macro-prudential coordination: The interaction of fiscal policy, monetary policy and financial stability needs to be brought into the equation as it has a bearing on the new regulations the FSA is proposing.
- Socio-economic trade off: The trade off between financial stability and economic growth has to be considered. There is a danger that over-layering of multiple capital measures will constrain banks’ ability to support lending to business and personal customers.
- Overall impact assessment: There needs to be an immediate impact assessment to quantify the costs and benefits of the proposals set out in the discussion paper. This major shortcoming must be urgently addressed as we need to know the impact of all the measures taken together and to consider things like the increase in the cost of capital and how this would hit GDP growth if bank lending is curbed.
- IT considerations: New regulation will need new IT solutions. These will take time and money to bring in so the FSA needs to prioritise the order banks will need to phase in the information they are asked to provide.
Chief executive Angela Knight said: “The British Bankers’ Association’s key message to the FSA on its plans for future banking regulation is that much more needs to be done to work out the impact of the measures it is proposing. We also need to be clearer on how much this will all cost and how the changes can be phased in so the banking industry plays its full part in the UK’s economic recovery while still supporting its business and personal customers.”
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