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FSA to explore Turner review concerns of large firms

The FSA is to publish a discussion paper later this year to assess industry concerns surrounding the Turner Review’s impact on large, systematically important firms.

The regulator says industry respondents to the Review have questioned how systemically important firms should be dealt with, especially after the G20 has called for higher prudential standards for such firms.

The financial industry is concerned over the impact of capital and liquidity reforms – it says there is a need for analysis of the combined impact of stronger overall capital and liquidity requirements, changes to trading book capital and countercyclical capital.

The FSA says the discussion paper, which will be published ahead of the second Turner Review conference in November, will consider the possible impact on leverage and maturity transformation in the banking system and how trade-offs may have to be made between costs of intermediation and financial stability.

The new paper will also address the policy tools available to the Tripartite and how they might be applied. This will include discussion of the possible design of living wills which could be implemented at both national and global level.

The FSA says respondents to the review, which was published in March, generally agreed with its analysis and approach it proposed. But other issues raised included the need for policy options to be given more of an international approach, as well as concerns that any measures implemented by the UK alone could damage London’s competitiveness.

It says: “The FSA recognises that the policy solutions that emerge to tackle the cause of the crisis will have to be both radical and internationally agreed in order to be effective. To this end, the FSA has been actively engaged with international partners and counter-parts, firms, academics and other Tripartite members to make progress on these issues.”

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