In October 2008, the Chancellor of the Exchequer asked the Chairman of the FSA – Adair Turner – to review the causes of the current crisis and to make recommendations on the changes in regulation and supervisory approach needed to create a more robust banking system for the future. The result is the Turner Review which was published on 18 March 2009, and extends to over 120 pages. Interestingly, the introduction makes clear that the review is not intended to address the short-term challenge over the next few years, but rather focuses on the ‘fundamental and longterm questions’. Its focus is banking (the accompanying FSA discussion paper covers other financial services).  

The Review  

  1. What went wrong?

This initial chapter is divided into sections providing an explanation of the global story, the UK story, the issues created by global finance without global government. It explains that historically, the FSA’s approach had been to assume that the primary responsibility for ensuring prudential soundness lies with the home country supervisor, but the decision of a state to intervene is taken on the basis of national rather than global considerations. To address these problems, the Review recommends more international co-operation and an increased use of host country powers. Drawing on the collapse of Landsbanki, the Review also flags up the dangers within the EU of depositors of one country being vulnerable to the failure of banks in another country if the host country lacks the supervisory resources to ensure solvency or the fiscal resources to step in to fund a bank’s rescue.  

  1. What to do?

Chapter 2 contains 28 recommendations (some of which have already been implemented) which Turner deems necessary to create an effective banking system, better able to serve the needs of the business and households alike. The Review recognises that some of the recommendations require to be implemented at a supra-national level and in some cases will therefore require international co-operation.  

Broadly, the Review makes the following recommendations:-  

  • fundamental changes to be made to capital and liquidity requirements, and to the information contained in the financial accounts of banks;
  • more and higher quality bank capital, with several times as much capital required to support risky trading activity;
  • banks to be required to build up reserves in healthy economic periods, which can be drawn on in downturns;
  • greater regulation of "shadow banking" activities;
  • regulation of credit rating agencies, intended to limit conflicts of interest and inappropriate application of rating techniques;
  • implementation of national and international action to deal with remuneration policies;
  • major changes in the FSA’s supervisory approach; and
  • major reforms in the regulation of the European banking market.  
  1. Wider issues

Chapter 3 sets out wider policy changes which may be appropriate but where it is considered further debate is required. The questions posed in this chapter are:-  

  • should the regulators play a role in product regulation?
  • should regulators and central banks deploy other tools?
  • do approaches to the regulation of markets need more overtly to “recognise tradeoffs between the benefits of technical efficiency and liquidity and the potential for harmful irrational momentum effects”?

Unsurprisingly, the publication of the Review has met with a mixed reception. The BBA, the Council for Mortgage Lenders and the Building Societies Association welcomed the review, while Vince Cable stated:-  

"…this report completely fails to call for the separation of low risk high street banking from high risk banking. Banks should be safe places for people's savings, not huge roulette wheels. Banks that act like gamblers in a casino, taking massive risks for big returns, cannot be allowed to come begging to the taxpayer when things go wrong in the future."  

Interplay with FSA Discussion Paper  

As mentioned above, the FSA published a Discussion Paper at the same time as the publication of the Turner Review. It extends the discussion to the broader range of financial services, but (we are told) only underpins the Turner Review and provides further analysis and background material. The Discussion Paper does not contain any further actions or recommendations beyond those set out in the Turner Review.  


The Discussion Paper contains a list of 38 questions (which mirror the formal proposals set out in the Turner Review). The FSA invites responses by 18 June 2009.  

More information  

The Turner Review (and the separate FSA Discussion Paper DP 09/2) can be found at: