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Banks will have to face up to a future of lower profits but lower risks if regulators are to prevent another global banking crisis, the head of the Financial Services Authority told MPs today.
“Higher capital requirements by regulators will make it more likely that bits of the banking industry are lower-return but lower-risk than in the past,” said Lord Turner, chairman of the watchdog.
He told MPs that he and Paul Volcker, former US Federal Reserve chairman and now Barack Obama's special adviser, were “in total agreement”, adding that he believed the US administration no longer wanted to ban banks entirely from trading on their own account — so-called proprietary trading.
“We are in full agreement on the means, and that capital requirements for trading activities will be the key. I spent 45 minutes on the phone to him three weeks ago, discussing how we can distinguish between day-by-day trading positions used for market making and proprietary trading.
“We are monitoring this very closely. Where banks go beyond market-making to proprietary trading, we would hit them hard with higher capital requirements,” he said.
Turner added that banning trading could not solve all banking problems, highlighting the case of HBOS, which had to be bailed out and taken over by Lloyds last year. He said: “HBOS was not involved in fancy trading. It was simply overexuberant in its lending to the commercial real-estate sector.”
But he also admitted that banks could always find gaps in any new regulations. He said: “There are ways around both legislation and new capital requirements.”
Reader views (3)
Prop trading did not cause this crisis. It is the failure of Lord Turner to have reigned in reckless lending by the mortgage banks [not prop traders!] and the out of control derivatives markets. Yet here he is pontificating about the very businesses he failed to regulate!! Stunning audacity to say the least! RBS paid the wrong price for ABN Amro as did LLoyds for Halifax...Northern Rock was was so dangerously structured that a junior analyst could see it! Lending long and borrowing short is borderline crimmminality but did Turner say anything? Nada...bingo banking collapse. What did Prop trading have to do with it? Nothing. The real prop traders like Goldman are making ever higher profits because they DID NOT lend money. Its the High Street donkey banks that caused this crisis!
- James Macleod Ritchie, Oyster Bay Cove, 02/03/2010 21:27
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I have a lot of time for Lord Turner. A new crisis will happen in time, but it is unlikely to be similar. What is needed is that financial instituions review their due diligence process and require letters of misrepresentation from sellers to limit risk. The USA telecoms and Banking have cost the UK, HSBC (alone) has spent £70 Billion over 4 years and RBS many billions on sub-prime.
- Andrew, London, 02/03/2010 13:05
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Madoff yesterday.
Banks tomorrow.
However Madoff ran out of cash to prop up his poonzi scheme.
Banks forced the governments to print money to prop up their schemes.
They are still coining it....For how long.?
- Coplani, Inverurie U.K., 02/03/2010 12:50
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