Financial Regulatory Forum

Bank of England’s King says UK, US closer than EU on regulation

By Reuters Staff
February 12, 2010
It's closer across the Atlantic

It's closer across the Atlantic

 (Updates with more quotes, details from report)

LONDON, Feb 12 (Reuters) – Britain and the United States are more convinced of the need to force banks to hold more capital than some big European nations, Bank of England Governor Mervyn King told the Council for Financial Stability last month.

The minutes of the meeting between the BoE, the Treasury and the Financial Services Authority on Jan. 14, published on Friday, showed King felt the task of getting nations to agree to stricter rules for banks “should not be underestimated”.

The G20 group of developed and emerging nations has been looking at ways to strengthen regulation after the credit crisis but there have been concerns that a show of unity at the height of the crisis may fall apart as the global economy recovers.

FSA Chairman Adair Turner told the meeting that, while Britain had pushed hard to implement internationally-agreed standards for remuneration in the financial sector, others were dragging their feet.

The minutes showed the FSA had forced some banks to change their pay plans and said “potential issues could arise if other countries failed to follow the UK’s implementation of the Financial Stability Board code in time for the 2010/11 remuneration round”.

“There needs to be an internationally agreed practical way to further the commitments made at the G20 meeting,” the minutes said.

Policymakers worry that different approaches to regulation across the world will encourage banks to take advantage by shifting their operations to less strict jurisdictions and, in doing so, create pockets of risk across the global system.

The minutes showed broad agreement between the three authorities on how to improve Britain’s financial stability.

“The FSA Chairman (Adair Turner) agreed with the Governor that banks needed to increase capital reserves and decrease leverage steadily,” the minutes said.

“Like the Governor and the Chancellor (finance minister Alistair Darling), the FSA Chairman said striking the right balance would be critical so that lending was not curtailed.”

The three also agreed that major British banks, who received considerable help from the government during the credit crisis, should develop exit strategies from state support.

The Council for Financial Stability was devised last year to improve co-ordination between the Treasury, BoE and FSA in their responses to threats to the financial system. (Reporting by Matt Falloon; Editing by Andy Bruce) ((UK Economics desk, uk.economics@reuters.com, Tel: +44 207 542 1894))

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