View more on these topics

Turner calls for new Glass-Steagall approach

FSA chairman Lord Turner has backed plans to limit the risky investment trading of large banks by capital requirements rather than splitting up banks between ‘narrow’ and ‘investment’ entities.

Speaking at today’s Turner Review Conference in London, Turner argued that banks cannot be ‘too big to fail’ in the future, but said that simply splitting up their operations will only cause more instability.

He said: “Extreme narrow banking is clearly doable in practical terms, but I believe it would fail to address the most vital problem and could produce a financial system even more vulnerable to instability.”

Instead, Turner argued for the ‘new’ Glass-Steagall approach, which would limit the riskier investment activities of banks through “the active use of capital requirements” which would allow a “trade-off between greater internal separation and higher levels of whole group capital”.

He said that modern banking cannot do without more complex investment trades such as the trading of corporate securities. He said: “All of these [investment] activities, pursued on a reasonable scale and with appropriate capital backing, are an acceptable element within modern commercial banking.”

Turner also reiterated his call for the creation of ‘living wills’ for large financial institutions, as well as the need for banks to hold contingent capital or debt capital that could be converted to equity capital if certain capital ratios are breached.

He said: “The optimal policy is highly likely to include a combination of different policies, rather than searching for a non-existent silver bullet that solves our problems in one shot.”

CMS Cameron McKenna head of financial institutions and services Ash Saluja says: “Insurers, building societies and other firms should beware of Turner’s proposals. He talks about the biggest banks, but in the small print FSA says that the new living wills regime will apply to all UK deposit takers, however small. It will also apply to those insurers, life offices and other firms judged to be systemically important.”


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. When did Turner last visit a casino? It makes its money by making punters double up on their bets – just as he proposes ‘casino’ banks should do by taking in more capital so they can lose it. The best policy when you go into a casino is to set aside less not more capital. What we should be doing is forcing banks that want to trade proprietorial capital to reduce it not increase it. Take the chips away and the punters (banks) will lose less and be less risky.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm