Adair Turner, FSA Chairman, addressed the British Bankers Association's annual conference on June 30th.
In the first keynote address since the economic crisis became entrenched, and the close call of October last year with an almost complete and global collapse of confidence in the banking community, Turner calls for changes in the style of supervision and in banking regulation as well as within the banks themselves.
Noticeably, Turner also refers to "bank-like" operations in a passing reference to the wider financial community.
Before we consider the highlights of the speech, keep this in mind - reports are emanating out of Number 11 Downing Street (the British Chancellor of the Exchequer's home and office) of a new Banking Act which will significantly favour the FSA over the Bank of England. Mervyn King is deeply unhappy at the apparent encroachment of the FSA upon his banking regulatory turf. Not-so-New Labour has developed the bad habit of leaking legislative intentions to the press around six months before formal announcements are made.
Expect a formal introduction of the new Banking Act legislation in or around October.
With this in mind, Adair Turner's speech should be construed not only as a commentary upon the economic upheaval of the last year but as a sales pitch for more regulatory powers and responsibility to be conferred upon the FSA, as well as a wooing of the lambs to be shepherded in the regulatory fold.
While wide-ranging in the subject matter, certain themes emerge which serve to underline the thinking behind the FSA's current regulatory strategy and philosophy.
The bail-out of some of the largest financial institutions in the world has scotched the myth that a bank is too large to fail, or has too many other connections such that it has been able to diversify business risk away. Turner let's slip his view is for banks to be compelled to meet higher capital adequacy requirements; but how serious is that when the recent stress test results have not been published amidst claims of a fudge?
The international dimension has planted itself in the consciousness of regulators and government. With banking and investment operations spanning the globe and even pan-European operations or other regional operations, cooperation between national regulators is more important than ever. One government cannot control or save the world (or itself) from financial collapse any longer but collaboration is the watchword. Turner appears to recognize the end is nigh for ring-fencing measures which are simply protectionist and run counter to globalization market pressures and this is sure to win approval from the US and elsewhere such as the Swiss.
Finally, the retail versus investment banking nexus. With the distinction between the two increasingly blurred and risky proprietary trading operations in the mix, Turner makes a hard-to-disagree-with point that large retail banks taking deposits on the basis they were too large to fail, then engaged in high risk proprietary trading creating big bonuses for bankers and a large bill for the taxpayer to bail them out along with the economic recession.
For a moment it does look like Turner is laying blame for recession at the banks door, but mentioning taxpayer bailouts and bonuses is certain to win political brownie points from political masters with more regulatory powers to bestow and a bigger budget.
No response or comment has been forthcoming from the Bank of England but the corridors of power will be fertilising the grapevine so watch this space.
For the latest regulatory news and analysis from the US, UK, EU and Far East visit ComplianceAsia's blog. This article was commissioned by ComplianceAsia, the leading APACS region provider of outsourced compliance support for leading banking and financial institutions operating in the region. You can keep abreast of the best of international regulatory news from Washington D.C., New York, London and around the world at http://complianceasia.squarespace.com
(c) Karl Hindle - All Worldwide Rights Reserved
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