regulation

Chris Giles

Today’s consultation document on financial regulation places the Bank of England at the heart of financial regulation and establishes an interim Financial Policy Committee to identify and reduce system-wide risks to the UK financial system, known in the jargon as macroprudential regulation.

The document is months late. That does not matter and  it is clear that it  has benefited from considerable thought about how the new Bank of England will work. The new Bank will maintain its objectives for monetary and financial stability, while adding banking supervision to its duties, and the new FPC will also have some, as yet undefined, powers to direct the PRA and the new Financial Conduct Authority (which we had known as the Consumer Protection and Markets Authority). These directions will aim to damp speculative credit bubbles when they emerge.

The FPC’s toolkit is broad and ranges from speeches and warnings to the possibility of higher bank capital ratios, higher risk weights for certain assets and direct limits on loan-to-value ratios or other collateral in lending.

But there are two significant problems with the new regulatory structure and the members of the FPC, much discussed outside the Bank, but not addressed in the consultation document at all. Read more

Restructuring the FSA will improve regulatory supervision without harming the competitive position of the UK, according to a majority of UK finance professionals surveyed by international law firm Norton Rose.

Of the 156 UK respondents, 69 per cent disagreed or strongly disagreed that restructuring Britain’s regulator would harm the competitive position of the UK as a financial sector, while 54 per cent agreed or strongly agreed that the proposals would improve regulatory supervision. Read more

Basel policymakers, beware: higher capital requirements for banks can increase systemic risk. Although risks are lower for each bank individually, “systemic linkage” between the banks is higher. Depending on the banks’ balance sheets, this can mean higher systemic risk.

Researchers at the Dutch central bank explainRead more

Are structured products more accurately valued now than in 2008? If you are an investor or auditor, the Financial Stability Board wants to hear your answer to this question. Read more

The overhaul of the US financial sector cleared its last big hurdle in Congress on Thursday as 60 senators voted in favour of the legislation, which introduces a raft of restrictions on banks to curb risk.

More than a year after the mammoth legislative effort began, Democrats managed to persuade three Republican senators to support the Dodd-Frank bill, enough for the 60-vote supermajority needed to bring debate to a close. Read more

Irish banks might never be the same. New bank regulation legislation was passed yesterday, 69-65. The bill is now off to the upper house, the Seanad.

The Central Bank Reform Bill would merge the central bank with the regulator, giving the regulator’s consumer information roles to the national consumer agency. The new integrated central bank and regulator would be called the Central Bank Commission. Read more

Thoroughly recommended, from Howard Davies & David Green:

There are areas in the coalition agreement where mating a pure-bred Tory policy with a pedigree Liberal Democrat manifesto commitment has produced a mongrel, but in the area of financial regulation the opposite is the case… The formal statement says the government will “give the Bank of England control of macroprudential regulation and oversight of microprudential regulation”. We may presume from this that day-to-day institutional supervision will remain with the FSA. That makes sense. Read more

City analysts will be relieved by the UK government’s reprieve for the FSA, the UK’s financial services regulator. “There will be cheers in the City if, as now seems likely, the FSA remains the single regulator for banks and insurers,” Paul Edmondson, a London-based regulatory lawyer, told Bloomberg.

The Conservative Party had pledged to scrap the body, shifting its responsibilities to the Bank of England. This now looks unlikely but FSA responsibilities will still change. According to Bloomberg, the FSA will “undertake day-to-day supervision of individual lenders, and report directly to the central bank”. Read more

Fed officials are watching the markets, trying to get to the bottom of the sudden plummet this afternoon and the various “fat finger”/programme trade theories for what happened. But across the nation – at the regional Fed headquarters as well as in DC – they have also kept an eye on C-Span and the “audit the Fed” amendment on Capitol Hill.

Right now Bernie Sanders, the independent, self-proclaimed “socialist” senator from Vermont, is preparing for the vote on his audit amendment, which would broaden the scope of the things Congress is allowed to investigate inside the central bank. The Fed has seen this as an existential threat – possibly ending almost 100 years of independence from political control. Read more

Matthew Elderfield, head of financial regulation at the Irish central bank, will today announce a ban on chief executives becoming chairmen, limits to the number of outside directorships bankers can hold, and new standards for non executive independent members of boards. “So much of what has happened flowed from poor corporate governance and risk management that it is important to get rigorous standards in place,” he told the FT in an interview.