The FSA has published a speech by Adair Turner (Chairman, FSA) entitled Building a more stable global banking system.

In his speech Lord Turner expands on three themes from his recent review of banking regulation.

Lord Turner states that a major objective must be to return banking to its basic functions - providing vital services of real value to the real economy. Market discipline alone cannot achieve this or to ensure that financial instability risks are contained. It can only be achieved through robust regulation.

Reform is multifaceted with three key elements being:

  • A macro-prudential approach.
  • Major changes to capital adequacy regulation.
  • Major changes in the regulation of liquidity.

Lord Turner believes that there is significant agreement relating to the designing of a new global framework for the regulation of banking but accepts that there are still areas with no clear answers, including:

  • How to balance any possible costs of higher capital and liquidity requirements against greater systemic stability.
  • Whether banks that are 'too big to fail' may be expected to hold extra capital.
  • The possibility of cross-border banks facing more onerous local liquidity and capital arrangements.
  • Lord Turner believes that: 'We need to design a banking system and credit intermediation system focused on its core and essential functions in the real economy and better able to be a shock absorber rather than itself a source of instability'.

View FSA speech - Building a more stable global banking system, 27 April 2009