FSA chairman Lord Turner hints at direction of future supervision
LONDON - Chairman of the UK Financial Services Authority (FSA) Lord Adair Turner has indicated the regulator's supervisory agenda in an interview with UK newspaper The Independent. Higher capital adequacy levels, liquidity regulation, and the supervision of off-balance sheet assets all featured strongly, but with less emphasis on direct regulation of City bonuses.
"As the process of irrational exuberance sets in, the price of those assets can go to unreasonably high levels, generating what are in a sense illusory profits and very large bonuses to the people involved in the process," said Turner. "This in turn makes bankers think they should do even more of what they have just done."
The UK's financial regulator is due to release a government-commissioned review of City supervision in March, following up on initial principles for financial compensation structures announced in a 'Dear CEO' letter of October 13, 2008.
Capital requirements on riskier products could form an alternative FSA strategy to specifically regulating remuneration. Altering capital requirements would however have knock-on effects for internationally agreed capital levels as set by the Basel Committee and into European Union (EU) law via the Capital Requirements Directive.
Turner also poured water on current EU debates on the necessity for a cross-border regulator to co-ordinate future responses to financial crises. European Central Bank (ECB) governor Jean-Claude Trichet has already said his monetary body "stands ready" for cross-border supervisory responsibilities.
"You cannot have global regulation without a global central bank and a global government with fiscal resources," said Turner. "If things go wrong, the resources that rescue banks are national central banks and governments with tax and borrowing powers. If that is the case, no sovereign government on the hook to bail out its banks is ever going to hand supervision to a global body."
Turner added that it is necessary to use existing international bodies to hammer out regulation in the short term, suggesting that "overlap" and "consensus" were more likely than long-term global regulation.
"But it will take a long time, and in terms of the immediate regulatory response, we have to do it through the architecture we have already got of overlapping international forums. We must work through these to get sufficient consensus to sign up to common standards. It is an imperfect system," said Turner. "If you are trying to run a global economy without a global government, the only way is through the scrappy, difficult process of creating global governance and standards that everyone can sign up to."
More on Central Banks
BoE governor insists clearing houses must have enough liquidity to cope with default of two big member firms
Deputy governor is bound for academia in the US after helping with transition to new Carney regime
Underpinning the integration of regional capital markets is a major concern for Vorapol Socatiyanurak, secretary general of Thailand's Securities and Exchange Commission
This paper examines the effects of introducing an auto-collateralization scheme in a simulated securities settlement system. Using artificially generated data, it shows that auto-collateralization can...
Sign up for Risk.net email alerts
Watch highlights of this year's London conference
Operational risk and the challenges of defining and dealing with conduct risk
Watch discussions and speakers from our North America conference
In the February 2014 editorial video, OpRisk's latest industry survey finds room for improvement in risk management
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.