Web round-up: Reaction to FSA’s bank regulation proposals

March 18, 2009

The Financial Services Authority (FSA) has published a blueprint for a shake-up of global banking regulations aimed at preventing a repeat of the current financial crisis. The report, authored by FSA Chairman Adair Turner, recommends an increase in banks’ minimum capital requirements, closer regulation of hedge funds as well as proposals to stop banks lending too much during boom years and measures to restrict the ability of banks to take excessive risks.

The report comes a week after FSA Chief Executive Hector Sants said in a speech at Thomson Reuters London offices that the banking sector should be “very frightened” of the regulator.

Here is a quick round-up of how the FSA’s blueprint has been received across the web.

Robert Peston, the BBC’s Business Editor, writes on his blog that much of what the FSA Chairman said was “common sense” and that “some of its gleaming new rules would in fact represent a return to a framework for limiting risk-taking by banks that prevailed until comparatively recently.”

There was also a good discussion about the FSA and international banking regulation on this morning’s Today programme on BBC4, which you can listen to here if you missed it.

Over on the Telegraph, meanwhile, Simon Denham comments that: “The new “aggressive” stance from the FSA is a legitimate reaction to the howls of outrage – some justified and others totally misplaced – about the moral and managerial turpitude within the City.

“But it remains to be seen how this will translate into action. The worst case scenario would be for regulation to become unduly cumbersome, slow the mechanisms of the City and hinder any wider recovery for the economy. That said… Lord Turner’s report is a golden opportunity for the regulator to really get behind financial services.”

Lord Turner also announced that potential homeowners may need to put down at least a 15 percent deposit to secure a mortgage. Richard Mason, Managing Director at Moneyextra.com, however, told Times Online that: “Putting a cap on mortgage lending is simply a case of shutting the stable door after the horse has bolted. This action is futile and detrimental to those that need help the most – first time buyers.

“Lenders should not allow the Government to dictate their lending criteria. Rather, the FSA should focus on challenging lenders to ensure they are operating comfortably within a stable and predictable property market.”

Lorna Bourke on Citywire.co.uk says that mortgage controls would be have “disastrous long term consequences for the housing market and is just plain wrong. “The amount borrowed by a homebuyer is just one factor in determining the person’s ability to meet repayments. The level of interest rates is equally important and their credit track record and other financial commitments are all factors to be taken into account.”

Patrick Collinson of The Guardian, on the other hand, says that a cap on income multiples is correct, but does not go far enough. “Can someone explain what societal damage will be incurred if someone is prevented from taking a home loan worth five times their income? The FSA should also consider imposing tight controls on how couples, married or not, are assessed for borrowing.”

Managementtoday.co.uk asks if the measures outlined by Lord Turner might actually do more harm than good. “Lots of people are sceptical that it will have enough knowledge and expertise to spot the danger in time, even if it gets the extra powers of intervention Turner wants.

“Turner has also called for a pan-European regulator, to try and keep an eye on the industry at a regional level. And therein lies a big problem with all this: if the regime becomes a lot stricter in the UK, but not anywhere else, the big banks will just leave London and go somewhere else that gives them an easier ride.

“Hence why some City folk are worried that all Turner’s reforms will do is reduce London’s competitiveness as a financial centre – which is likely to make the UK’s economic recovery even slower.”

Now it is over to you. What do you think of the FSA’s plans for financial reforms put forward by Lord Turner today?

2 comments

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A completely ghastly report on the mortgage finance sector from the view of a first time buyer. It will not work for a number of reasons and will drive out any home of people owning property for the next few years, just when so many jobs are reliant on the housing industry.

I agree some form of deposit MUST be put down, but to blanket it at 15% will kill off any FTB hopes in London, let alone the rest of the UK. 10% should be the minimum benchmark, if there is one. However, I along with many others I have spoken to believe a stricter test of spending power for applicants along with lower interest rates will result in sensible lending. Only give to those who can afford and ensure it is done on a case by case basis.

Like it or not, house prices dictate our spending power elsewhere. They need not be overinflated or astronomical but have to be realistic. For those hoping a house will drop to £70-80k average cost, one must ask how much it costs to construct a house? Certainly not this amount for a family house by any means, even if land values dropped dramatically. A fall in house prices will results in a rise in unemployment numbers. Be careful doom mongers, you reap what you sow, pessimisim has a funny knack of being self-fulfiling.

Posted by Tom | Report as abusive

In finance, self-regulation is non-regulation! The FSA was the epitome of ‘light touch’ regulation, set-up by Gordon Brown ‘in his own image’! Now Turner’s and his staff are supposed to turn nasty? Their only standards, like those of the Civil Service, are to hold onto the powers it has. God forbid that the FSA should continue to ‘regulate’. Any reviews it produces will be just so much wasted paper, an attempt to justify a clawing for more power following their abysmal lack of performance..
D.Thomas.

Posted by D.Thomas | Report as abusive