Lord Turner on new capital and liquidity rules

by Gill Montia

Story link: Lord Turner on new capital and liquidity rules

The chairman of the Financial Services Authority (FSA) has told banks that “excellent supervision” alone is not sufficient to promote financial stability.

Speaking at the British Bankers’ Association (BBA) annual conference earlier this week, Lord Turner warned that unless rules are changed radically, future crises will not be avoided.

He added that banks themselves needed to change, arguing that “strong capital and liquidity are central to the reform of banking regulation going forward”.

The FSA chief went on to identify three interconnected issues which he sees as the key to the design of the new capital and liquidity rules.

They are: how to deal with banks which are too-big-to-fail and how to deal with cross-border banks; with regard to narrow banks (undiversified banks) and investment banking, whether it is possible to achieve a legal separation.

In conclusion, Lord Turner said: “The new, more intensive approach to supervision and the new regulations … can guard, to a significant extent, against the dangers of financial instability. But it is up to the banking industry itself to restore an appreciation of the positive role which banking can and must play and to create a culture focused on delivering necessary services to customers.”

Also addressing the conference, BBA chief executive, Angela Knight, cautioned: “Multiple measures to control banks could result in less money being available to lend to businesses and individuals.”