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The Financial Service Authority (FSA) of UK published on Wednesday a report for the reform of global banking regulation, through which the British government hopes to make clear its standpoints for the reform and tried to frame the future financial regulation at the upcoming G20 London Summit.
The report from Lord Turner, chairman of FSA, identified three underlying causes of the global financial crisis, namely macro-economic imbalances, financial innovation of little social value and important deficiencies in key bank capital and liquidity regulations.
The report comprehensively set forth how to reform the global financial system. It recommends fundamental changes to bank capital and liquidity regulations, counter-cyclical capital buffers, building up in good economic times, regulation of "shadowbanking" activities and regulation of hedge funds, regulation of credit rating agencies, and national and international action to ensure that remuneration policies are designed to discourage excessive risk-taking.
Turner also emphasized that regulators should broaden their regulation scope to include hedge funds and other entities that posed systemic risks. He said "If an activity looks like a bank and sounds like a bank, we have to regulate it like a bank."
Turner also suggested the establishment of a new pan-European Union financial body to focus on cross-border supervision and standard-setting. He said "We need both far more intense international cooperation and greater use of national powers." However, the FSA has long been opposed to the idea of the establishment of the pan-European regulation.
Of course, the timing of the publication of the 120-page report is no coincidence. It was published just a fortnight before the G20 group of developed and developing nations are due to meet in London to discuss the response to the crisis. However, the FSA is unable to act independently in many of these areas and it needs close cooperation with other countries and other international financial institutions.
Analysts said that the London Summit would mainly discuss how to reform the international financial system and push forward the international cooperation. However, there exist many difficulties to really carry out the cooperation. Especially, the U.S. government is not willing to make a fundamental change for the light-touch financial regulation mode, while EU countries including Germany and France, which have been hit hard by the financial crisis harshly criticized the American-style regulation mode.
Thus, some pessimists are worried that finally each country will continue to carry out its own financial regulation mechanism except that they will make some efforts to strengthen it.
Britain is one of the countries hit most by the global financial crisis. Two banks of Northern Rock and Bradford Bingley Bank have been nationalized one after another. HBOS, the largest mortgage banker in Britain, has been acquired by the Lloyds TSB. The British government had to inject huge capitals into RBS and Lloyds Banking Group and provide guarantee for the loans of the two banks. As a result, the state has become the largest shareholder of the two banks. |
