Lord Turner, the Financial Services Authority (FSA) Chairman, expresses positive sentiments on the package of capital and liquidity reforms reached in Basel III conference. In his speech at the Mansion House tonight, he asseverated that an effective regulatory response to the recent financial crisis needs to go beyond the demonization of over-paid financial traders and must recognize the fundamental mistakes committed by policy makers.
Turner points out that there were actually many events that led to the crisis but the pivotal cause is the failure of the prudential rules and regulation to identify and address the dangers of excessive leverage. The same rules and regulation, according to Turner, relied too heavily on efficient and rational markets to produce good results without an updated examination whether they are still producing good results.
On the decisions reached in Basel III, Turner says he welcomes such packages and adds that he is confident that the Basel III reforms will significantly improve the resilience of the global banking system without harming prospects for economic recovery.
Turner likewise stresses that while Basel III is vital, it still is not the end of global regulatory reform. Taxpayers should not have to bail out those systemically important financial institutions which in the past have been judged “Too Big to Fail.” Turner also emphasizes the need to create a new Financial Policy Committee (FPC) to guard against all financial risks the country can encounter. The FPC will act as the “macro-prudential underlap” between the FSA and the Bank of England, and shall move beyond a rule-driven approach to financial policy that recognizes the importance of judgment and discretionary powers in order to constrain excessive credit growth.