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Curbs on risky banking proposed Curbs on risky banking proposed
(10 minutes later)
Proposals aimed at overhauling UK banking rules and stopping a repeat of the financial crisis have been unveiled by the head of the City watchdog.Proposals aimed at overhauling UK banking rules and stopping a repeat of the financial crisis have been unveiled by the head of the City watchdog.
Financial Services Authority chairman Lord Turner has put forward "profound" proposals on lending and seeks to cut banks' ability to take excessive risks.Financial Services Authority chairman Lord Turner has put forward "profound" proposals on lending and seeks to cut banks' ability to take excessive risks.
The plans aim to stop banks lending too much during boom years and call for increased regulation for hedge funds.The plans aim to stop banks lending too much during boom years and call for increased regulation for hedge funds.
Bonus systems at financial institutions must also be overhauled, he added.Bonus systems at financial institutions must also be overhauled, he added.
The report also said that the idea of regulation in the mortgage market should be debated - but that it was too early to put forward specific action.The report also said that the idea of regulation in the mortgage market should be debated - but that it was too early to put forward specific action.
But it ruled out the separation if retail banking - banking for individuals and small firms - from the riskier business of investment banking. But it ruled out the separation of retail banking - banking for individuals and small firms - from the riskier business of investment banking.
Today we have one blueprint of how to make the global financial economy safe for us to swim in again BBC Business Editor, Robert Peston Today we have one blueprint of how to make the global financial economy safe for us to swim in again BBC Business Editor, Robert Peston class="" href="http://www.bbc.co.uk/robertpeston">Read Robert's blog in full
Misplaced faithMisplaced faith
The report followed the onset of the financial crisis which brought down several banks - including Northern Rock - and has left some of the world's biggest banks unable to survive without help from taxpayers.The report followed the onset of the financial crisis which brought down several banks - including Northern Rock - and has left some of the world's biggest banks unable to survive without help from taxpayers.
"The changes recommended are profound, and the banking system of the future will be different from that of the last decade," Lord Turner said."The changes recommended are profound, and the banking system of the future will be different from that of the last decade," Lord Turner said.
"The world's economy will be better served as a result.""The world's economy will be better served as a result."
Key recommendations include:
  • A change in the role of the FSA - to focus on the strategies of financial firms and wider risks to identify when firms could be heading for trouble
  • Better monitoring of credit conditions in the UK as a whole to assess if a dangerous boom could be approaching. The FSA, the Bank of England and the International Monetary Fund should do this, Lord Turner says
  • Banks being required to build up reserves in healthier economic times as a cushion against future losses and being forced to hold more cash or liquid investments, to make them less vulnerable to collapse other sources of finance dry up
  • The temptation to take excessive risks being removed by making ii less profitable for banks to to so - for example by forcing them to hold more capital
  • National and international efforts to ensure that remuneration policies - including bonuses - to be designed to discourage excessive risk-taking
  • "Shadow banking" to be overhauled- with regulation for hedge funds and other currently unregulated financial institutions
  • Credit rating agencies - which judge how stable businesses and investments are - to be regulated
  • Reforms to the regulation of European banking - including the idea of a new pan-European body to set standards for other regulators to follow.
Key recommendations include:
  • A change in the role of the FSA - to focus on the strategies of financial firms and wider risks to identify when firms could be heading for trouble
  • Better monitoring of credit conditions in the UK as a whole to assess if a dangerous boom could be approaching. The FSA, the Bank of England and the International Monetary Fund should do this, Lord Turner says
  • Banks being required to build up reserves in healthier economic times as a cushion against future losses and being forced to hold more cash or liquid investments, to make them less vulnerable to collapse other sources of finance dry up
  • The temptation to take excessive risks being removed by making ii less profitable for banks to to so - for example by forcing them to hold more capital
  • National and international efforts to ensure that remuneration policies - including bonuses - to be designed to discourage excessive risk-taking
  • "Shadow banking" to be overhauled- with regulation for hedge funds and other currently unregulated financial institutions
  • Credit rating agencies - which judge how stable businesses and investments are - to be regulated
  • Reforms to the regulation of European banking - including the idea of a new pan-European body to set standards for other regulators to follow.
'Major changes''Major changes'
Failure to look at the big picture was far more important to the origins of the crisis than any specific failures in supervising individual firms Lord Turner href="/1/hi/business/7950278.stm">FSA ponders mortgage restrictions Failure to look at the big picture was far more important to the origins of the crisis than any specific failures in supervising individual firms Lord Turner href="/1/hi/business/7950278.stm">More: FSA ponders mortgage curbs
Lord Turner said that too much faith had been put in the dogma that financial markets were always right, and corrected themselves.Lord Turner said that too much faith had been put in the dogma that financial markets were always right, and corrected themselves.
New regulation had to look across the financial system internationally, he added, saying "a global market economy remains the best means of delivering global prosperity".New regulation had to look across the financial system internationally, he added, saying "a global market economy remains the best means of delivering global prosperity".
"It requires a global banking system focussed on serving the needs of businesses and households, not in taking risks for quick return. Major changes in regulation and in supervisory approach are required to deliver that," Lord Turner said."It requires a global banking system focussed on serving the needs of businesses and households, not in taking risks for quick return. Major changes in regulation and in supervisory approach are required to deliver that," Lord Turner said.
"The approach has to build on a system-wide perspective: Failure to look at the big picture was far more important to the origins of the crisis than any specific failures in supervising individual firms.""The approach has to build on a system-wide perspective: Failure to look at the big picture was far more important to the origins of the crisis than any specific failures in supervising individual firms."
International regulation of the banking industry is expected to be one of the key topics discussed at the G20 meeting next month.International regulation of the banking industry is expected to be one of the key topics discussed at the G20 meeting next month.
BBC business editor Robert Peston said that much of what had been suggested in the report was "common sense".BBC business editor Robert Peston said that much of what had been suggested in the report was "common sense".
"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.""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."
And business secretary Lord Mandelson agreed that an international regulatory response was required to keep up with the speed of economic change and that this would have given "warnings" of problems in the system.And business secretary Lord Mandelson agreed that an international regulatory response was required to keep up with the speed of economic change and that this would have given "warnings" of problems in the system.