FSA rewrites banking regulation

The Financial Services Authority (FSA) has been airing its views on the type of regulation needed to avert another banking crisis.

According to a BBC report, FSA chairman Lord Turner wants UK banks to adopt a more sober approach to lending during boom years and use periods of strong economic growth to build up their capital reserves.

The new approach to lending could involve restrictions on loan-to-value ratios on mortgages.

Full details of the proposed reforms will be published later today but its is understood that the FSA chief will be demanding that banks are forced to hold more cash or liquid investments than under the current regime and include in their accounts clear information about the risks they are taking.

Such an approach could have prevented Royal Bank of Scotland’s fateful takeover of Dutch Bank ABN Amro.

In addition, a proposal to create a standard-setting pan-European regulatory body is expected.

Reports suggest that the FSA will also pledge to be less trusting of UK banks in the future and abandon the concept that that the market is always right.

Discuss this in the Finance Markets forums

Story link: FSA rewrites banking regulation