Curbs on risky banking proposed

[David Guyatt]

The words "gate", "horse", "bolted", "shut" and "after" spring to mind.

For my money (and also in contradistinction to what I have said earlier) it seems that the City regulator, the FSA, had plenty of powers to have properly regulated the City to stop the entire financial collapse from happening, but were using what they now like to call a "light touch" to monitor and not interfere. This seems to have been from guidance at a political level. Thus a more rigid use of regulation now after a couple of trillion pounds have been nicely tucked away in offshore banking havens and that nation indebted for the next 50-100 years, action is oh so slowly being taken.

http://news.bbc.co.uk/1/hi/business/7948791.stm

Curbs on risky banking proposed



Proposals aimed at overhauling the rules governing UK banking and stopping a repeat of the financial crisis are to be unveiled by the City watchdog.

Financial Services Authority chairman Lord Turner will put forward new rules on lending and seek to restrict banks' ability to take excessive risks.

The plans will aim to stop banks lending too much during boom years, which may include limits on home loans.

Banks may also be required to build up reserves in healthier economic times.

'Less trusting'

BBC business editor Robert Peston said: "Turner will say that banks should be forced to hold more cash or liquid investments, to make them less vulnerable to collapse when other sources of finance dry up."

“ The tragedy, perhaps, is that it's required financial calamity to bring about an outbreak of common sense ”

BBC business editor Robert Peston

Lord Turner will also recommend that banks publish more and clearer information in their accounts about the risks they are running.

And a proposal to form a new pan-European body will be mooted, to set standards for other regulators to follow.

"Most significantly Lord Turner will repeat his pledge that the FSA will become less trusting that banks are usually doing the right thing; the FSA will abandon the prevailing dogma of the past 30-odd years that the market is always right," said our correspondent.

"In a way, little of this is terribly surprising. The tragedy, perhaps, is that it's required financial calamity to bring about an outbreak of common sense."

Lord Turner has already said his plans will amount to "a revolution".

A shake-up in the relationship between the FSA, the Bank of England and the Treasury is also set to be proposed.

Paul Moore, the former head of group regulatory risk at HBOS, told the BBC that the bonus culture of investment bankers had encouraged them to take excessive risks in recent years.

"No doubt remuneration drove the growth of assets in an uncontrolled fashion," said Mr Moore, who recently told the Treasury Select Committee that he was sacked for warning the bank about its lending policies.

John Varley, chief executive of Barclays, told the House of Lords economic affairs committee on Tuesday that responsibility for the banking industry "somewhat fell through the cracks".

"We should take advantage of the calamity of the last two years and ensure we do learn and have in place a structure of supervision to spot these risks," Mr Varley said.

"There was misplaced confidence and we all made mistakes," he added.

'Systematic failure'

Last month, Lord Turner told a Treasury committee that the FSA's failure to spot the banking crisis in advance had been partly due to the style of regulation, with a "light touch" approach seen as politically preferred.

The tripartite arrangement, in which the three authorities have different roles, has been widely blamed for the events which led to the nationalisation of Northern Rock and Bradford & Bingley, and the huge losses at the likes of Royal Bank of Scotland.

“ The problem for the FSA is that the [banking] industry is global - but the FSA is local ”

Bob Penn, Allen & Overy
Critics of the system - introduced by then-chancellor Gordon Brown in 1997 - say that regulation had become confused.

This meant that none of the key players fully knew who was overseeing the UK's financial system, meaning that flawed banking models, such as that at Northern Rock, fell through cracks in the regulatory network.

Last year the Treasury committee accused the FSA of "systematic failure" for not spotting the Rock's "reckless" business plan.

Other issues likely to be covered in the FSA proposals include:

Hedge Funds: Traditionally secretive, these investment groups may be subjected to greater regulation and scrutiny

Bonuses: The FSA has made it clear it wants to curb the culture of excessive bonuses for short-term gains which have seen bankers at failing banks earn, in some cases, millions of pounds in bonuses

Mortgages: Some lenders have been accused of having made too much money available to people through 100% or even 125% mortgages - artificially inflating the housing market. Reports say limits may be placed on how much can be made available to would-be home buyers.

Bob Penn, partner at law firm Allen & Overy, said there was a danger that greater regulation would result in international banks "drifting" away from London to "less regulated jurisdictions".

“ The whole point is that systemic regulation will involve difficult and unpopular choices ”

Simon Morris, CMS Cameron McKenna

"The FSA is caught between two masters at this stage - the political imperative to put the boot into the banks on the one hand, and the need for London to continue to be an attractive place for international finance on the other," he said.

"The problem for the FSA is that the industry is global - but the FSA is local. This circle can only be squared by international agreement on the future of the regulation of wholesale markets."

Simon Morris, from law firm CMS Cameron McKenna, said the new focus of banking regulation had to be on identifying systemic risk at banks and authorities being able to legally intervene.

"The whole point is that systemic regulation will involve difficult and unpopular choices," he said.

The prospect of regulation of the mortgage market was not a solution to the threat of future house price inflation, the House Builders Federation (HBF) said.

"If the FSA and government go down the route of mortgage control to try to head off future asset bubbles, they are likely to entrench and worsen future housing under-supply that is rooted in the constraint of land supply," said the HBF's executive chairman Stewart Baseley.

"House price booms are caused by an imbalance between supply and demand and the long-term solution to escalating prices is to ensure there are enough homes to meet demand - not to impose regulation that takes no account of personal circumstance or risk that could discriminate against people perfectly able to realise their ambitions of home ownership.

"We are cleaning the car window when the petrol tank has a hole in it."

[Peter Lemkin]

David, whats a couple of trillion Pounds....among friendly thieves?....:joyman:

All the 'regulators' who now say they 'didn't see it coming and thought it couldn't have been anticipated to happen' :musicus: should be.......held legally and finacially accountable.

[David Guyatt]

Should be ----- but won't be, right.

[Peter Lemkin]

Should be ----- but won't be, right.

Right!....not going to make any money betting on that.hakehands:

What I don't get is that while there is some upset and growing, it seems to me to be in the intellectual and alternative blogs, internet sites, forums, etc. Why are people not grabbing pitchforks and going to 10 Downing or the White House and demanding accountablity, heads to roll, control of this highway robbery, and their money back!?????????????? Is it really the Shock Doctrine effect?!

“… You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, I will rout you out.”

—President Andrew Jackson, upon evicting a delegation of International Bankers from the Oval Office

[David Guyatt]

The obvious answer is that most people are still sleep-walking through history (to purloin a term)

But wait 2 years and ask that question again Peter. It's still early days.

The tax cost hasn't hit yet because it's been deferred until after next year's election. By then there will be 3 million unemployed in the UK and my guess is that things will become mighty bloody nasty when the full implications of what has happened hit people's pockets.