Turner sketches capital rules
LORD Adair Turner, the chairman of the Financial Services Authority (FSA), yesterday told bankers to prepare for “radical change” under the future regulatory regime, including the requirement to hold much higher capital ratios.
Speaking at the annual British Bankers’ Association (BBA) conference, the FSA supremo said he supported US Treasury secretary Tim Geithner’s proposal that the largest, most risk-taking financial institutions should maintain higher capital buffers than smaller rivals.
“Capital requirements against trading books need to be significantly increased,” Turner said, adding that the banking system needed such “shock absorbers” to deal with “bumps in the road”.
But Turner rejected the notion that larger banks could be forcibly broken up, saying that it was important not to “iconise” small banks.
He pointed to the 1929 Wall Street crash as evidence that small banks could also cause systemic risk and said proposed changes outlined in his review of regulation meant there was no need for banks to be shrunk.
“The new, more intensive approach to supervision and the new regulations which we can and will impose can guard, to a significant extent, against the dangers of financial instability,” he said.
There should also be no introduction of a UK version of the now defunct US Glass-Steagall Act, which separated commercial banking from investment banking, Turner added.
But he said there could be limits placed on proprietary trading, such as constraining the scale of risky positions taken by banks, rather than banning them from taking such positions at all.