Financial Regulatory Forum

British bankers dubious over plans for new supervisory body

By Reuters Staff
October 14, 2009

LONDON, Oct 14 (Reuters) – Britain’s banking association cast doubt on Wednesday on plans for a new national body to spot asset bubbles and stop them from getting out of control, saying its members were not sure how it would work.

Coordination between the country’s Financial Services Authority, Treasury and Bank of England was widely seen to have failed to identify system-wide risks that led to taxpayers having to back banks like Northern Rock and RBS.

The British government is due to propose legislation to turn the informal “tripartite” setup into a council on financial stability to improve coordination and communication and head off any future replays of last year’s crisis.

The British Bankers’ Association said it was not sure how the council would intervene in practice.

“I am still not convinced who will have the appetite and legal wherewithal to take away the punchbowl for an individual institution,” BBA deputy chief executive, Sally Scutt, told a City and Financial Conference.

“That is not an area thought about sufficiently or well understood,” Scutt said.

Spotting systemic risks is seen as a core lessons from the credit crunch amid acceptance that regulators focused too much on individual banks rather than the impact of activities like securitisation and derivatives trading on the broader market.

But global policymakers are still trying to come up with common ways to spot system wide risks and on tools to deal with them.

The FSA is due to come out shortly with its thoughts on identifying which banks pose a risk to the broader financial market.

Once identified, global policymakers have said such banks could face extra capital “surcharges” to counter their perceived advantage over other banks as markets will bet that governments could not let them collapse.

“There is no agreed definition yet of systemically important institutions,” said Elemer Tertak, director of financial institutions at the EU’s executive European Commission.

(Reporting by Huw Jones, editing by Patrick Graham)
((Reuters messaging: huw.jones.reuters.com@reuters.net; + 44 207 542 3326; huw.jones@thomsonreuters.com))

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