Lord Turner, speaking at the BBA’s annual conference, explained there is need for radical change to supervision, rules and within banks to avoid another crisis. He highlighted the importance of capital and liquidity in cushioning bumps in the road ahead. He then said three areas are key to how the new rules will look:
- dealing with banks that are too-big-to-fail: he said one could not exclude the option to force banks to be smaller although other options are probably more attractive;
- dealing with cross-border banks: he explained how the Icelandic bank problems had arisen and looked at how options for local ringfencing of cross-border banks lead to fear of deglobalisation; and
- the divide between narrow banking and investment banking: he said it is not so much a question of restricting narrow banks as knowing how far investment banks can stray from traditional banking activities.
He explained what FSA had already done, in light of lessons from Northern Rock. He also discussed the macro-prudential approach, noting media interest in the question of which regulator would take which role.