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REVIEW IN BRIEF


  • Fundamental changes to bank capital, liquidity regulations and bank published accounts, with a more intensive approach to regulation.

  • Quality and quantity of overall capital in the global banking system should be increased, with minimum requirements set significantly above existing Basel rules.

  • Capital required against trading book activities should be increased by at least three times the current levels, with several times as much capital required to support risky trading activity.

  • Counter-cyclical capital buffers, building up in good economic times so they can be drawn on in downturns and reflected in published account estimates of future potential losses.

  • More intense and dedicated supervision of individual banks’ liquidity positions, including the use of stress-testing defined by regulators.

  • Introduction of a core funding ratio to ensure sustainable funding of balance-sheet ratio.

  • Published accounts should include buffers that anticipate potential future losses.

  • No legal separation of utility banking and investment banking.

  • Regulation of “shadow banking” activities on the basis of economic importance not legal form. If it looks like a bank and sounds like a bank, the FSA says it will regulate it like a bank.

  • Increased reporting requirements for unregulated financial institutions, such as hedge funds, to assess their systemic impact. Regulator powers to extend prudential regulation to them if needed.

  • Regulation of credit rating agencies to limit conflicts of interest and inappropriate application of rating techniques

  • National and international action to ensure remuneration policies are designed to discourage excessive risk-taking

  • Major changes in the FSA’s supervisory approach, building on the existing supervisory enhancement programme, with a focus on business strategies and system-wide risks, rather than internal processes and structures

  • Major reforms in the regulation of the European banking market, combining a new European regulatory authority and increased national powers to constrain risky cross-border activity

  • Greater regulatory and supervisory focus on macro-prudential issues rather than solely concentrating on specific firms

  • Turner says talk of a cap on mortgage loan to value ratios or income multiples is “premature” but the FSA will consider these options in its September review of mortgage conduct of business and will look at whether buy-to-let and second-charge mortgages should come under the FSA’s jurisdiction.

  • A fundamental review of the way structured credit ratings are used and their role in the financial crisis.
    FSA to take a supervisory role in limiting the conflicts of interest and inappropriate use of rating techniques made by credit-rating agencies.

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