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FSA spells out further Basel III challenges
18 March 2011
The chairman of the Financial Services Authority argues that further reforms are needed to make the financial system stable
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Lord Turner
Financial Services Authority
Regulatory reforms will have a major beneficial impact but further reforms are needed to make the financial system stable, according to Lord Turner, chairman of the Financial Services Authority (FSA).
Turner believes that regulators need to recognise that the financial system will continually mutate, creating new risks, and requiring a continually evolving regulatory regime.
"The pre-crisis delusion was that the financial system, subject to the then defined set of rules, had an inherent tendency towards efficient and stable risk dispersion. The temptation post-crisis is to imagine that if only we can discover and correct specific imperfections – such as bad incentives or industry structure – that a permanently more stable financial system can be achieved," he said.
Lord Turner argues that while popular anger often focuses on the direct costs of public rescue of banks, these are likely to be small relative to the overall harm produced by financial crises. This...
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