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Turner focuses on effectiveness

FSA chairman Lord Adair Turner has dismissed reports of a rift between himself and Bank of England governor Mervyn King.

At the annual international banking conference at Merchant Taylor’s Hall in London this week, Turner admitted there needs to be debate over the framework of the tripartite authorities and the division of macro and micro-prudential supervision.

He said: “That debate needs to focus on what will work best, not on any considerations of institutional ambition or defensiveness. There is an argument in favour of locating the supervision of banks within the central bank. However, it is clearly not essential to do it in order to ensure effectiveness.”

He said that separating bank supervision from insurance supervision creates the danger that an institution such as AIG can inhabit “a regulatory no man’s land”.

Turner said he knew the media was looking forward to hearing about the latest twist in the FSA/Bank/Treasury, Adair/Mervyn/Alistair soap opera. He said: ” I read accounts of this soap with interest but with little recognition and I also read of concerns that a focus on future arrangements might distract us from the substance of what we need to do to fix the system. Let me assure you, the vast majority of all our efforts is focused on the actions we need to take now and the changes in regulation we need to make for the future.”

He also talked about how best to supervise global banks and put forward suggestions for a system of local legal entities within multinationals. With this approach, if a multinational bank fails, it would be down to each individual country to rescue their domestic part of the bank as opposed to leaving one country responsible for rescuing the entire international operation..

But he said: “I know that proposal creates concerns that such ringfencing would drive deglobalisation, reducing the ease with which global capital flows to its most productive uses.”

Turner called for further debate on the ramifications of separating banks’ retail and wholesale arms. He said: “There could be a role for defining more clearly the separate legal entities in which core retail banking functions and investment banking-type functions are performed.”

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