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For And Against Regulation And In The Light Of This Evaluate The Strengths And Weaknesses Of A Regulatory - Essay Example

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For And Against Regulation And In The Light Of This Evaluate The Strengths And Weaknesses Of A Regulatory

The review proposes that in a bid to ensure regulation consistency, the UK should adopt a single regulator approach across business lines. The review further acknowledges that importance of having the central bank as a systemic regulator. The principle based and light touch regulations are discouraged by the review and instead, focus is directed on rule bases regulations which are more intensive that are geared toward an extensive systemic risk as well as macroeconomic policy. The review therefore provides financial institution and banks a prudential regulation for future operations. Discussion According to the review, the major factors that have drove the world in the current financial crisis include among others the increasing financial innovation, growth in the market size, as well as microeconomic imbalances thus, causing overall systemic risk increase. In light of the foregoing crisis there was a great need to revaluate the existing regulatory regime, for instance the assumption that markets function in an efficient and rational way. To this end, Turner proposes a regulatory policy change in his review to a regulation approach that is more systematic (Turner 2009). In designing capital adequacy set of laws, the review postulate a couple of variant approaches which include: forming rules that are geared towards influencing the activities undertaken by different banks through sinking excessive risk taking incentives for the good of the economy at large (FSA 2009). Alternatively, the rules can be formed to shield the creditors in case of failure by a single bank. Turner in his review postulate that in order to direct more attention on Tier 1 capital and Core Tier 1, it would be prudent to boost the value of capital held by banks. The review further proposes that the current optimum level of capital should be substituted with a novel formation. The review however, acknowledges that the increase in the capital requirement should wait until the economy is more stable (Cooper 2009). The insufficiency of the existing regulations used for purposed of defining the level of risk involved in the trading book of particular assets is also highlighted by the review. Following the inadequacy of rules governing risks the banks were free to hold a small proportion of their overall capital visa vie the market risk in existence (Congressional Oversight Panel 2009). Turner review points out that the existence of institutions which have been undertaking functions similar to those of banks contributed to the global financial crisis. This is because, these bank like institutions were not subject to regulatory rules that applied to banks. Consequently, shadow banks as well as the off balance sheet SIVs posed actual systemic risk as the carry out extensive maturity formation and they were leveraged highly despite the fact that their liabilities were far much less than the assets maturity. That notwithstanding, these institutions were not within the regulatory regime thus contribution to the crisis. It is therefore the proposition of the review that much emphasis should be directed economic substance while designing future regulation rather than focusing on the legal form of ...Show more


Running Head: Turner Review Name Institution Date Introduction The Turner Review was compiled and published in 2009 by Lord Turner. He is the chair person of the Financial Service Authority (FSA) in UK. The review outlines well reasoned and viable regulatory reforms for financial institutions as well as banks…
Author : wilsonbashirian
For And Against Regulation And In The Light Of This Evaluate The Strengths And Weaknesses Of A Regulatory
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