Lord Turner, chairman of the Financial Services Authority (FSA), in a speech at the Global Financial Forum in New York, expanded on three themes from his recent review of banking regulation.
He told the conference that in designing a new global framework for the regulation of banking there was significant agreement, but also areas with no clear answers yet, including:
- How to balance any possible costs of higher capital and liquidity requirements against greater systemic stability;
- Whether banks that are "too big to fail" may be expected to hold extra capital; and
- The possibility of cross-border banks facing more onerous local liquidity and capital arrangements.
He stated that the potential macroeconomic costs of tighter regulation for banks had to be set against the benefits of lower risk to financial stability.
Lord Turner concluded that the banking system and credit intermediation system needs to be focused on its core and essential functions in the real economy and better able to be a shock absorber rather than itself a source of instability.