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FSA say 'more capital, less risk'

Robert Peston | 12:00 UK time, Wednesday, 18 March 2009

From about the mid-1990s to the autumn of 2008, the dominant model of how to run a bank was based on three very silly ideas:

1) there would never again be a severe economic recession;
2) markets were rational and perfect, so financial innovation was always benign;
3) greed could never cloud the judgement of bankers.

Then Lehman Brothers collapsed, most of the world's biggest banks found they couldn't survive without some form of help from taxpayers, and a global slump was caused by a collapse in the provision of credit on a scale we haven't witnessed for 80 years.

To state the bloomin' obvious, we mustn't ever be fooled again.

Today we have one blueprint of how to make the global financial economy safe for us to swim in again.

FSA logoIt's from the Financial Services Authority, the City watchdog, which didn't do a particularly sterling job in averting a meltdown of the financial system, but characterises itself as just one of the many victims of a failed ideology.

Here are the remarks of its newish chairman, Lord Turner, who doesn't feel personally implicated by the sins and omissions of the FSA's past (although he worked for one of the banking sinners, Merrill Lynch, for a few years):

"The financial crisis has challenged the intellectual assumptions on which previous regulatory approaches were largely built, and in particular the theory of rational and self-correcting markets. Much financial innovation has proved of little value, and market discipline of individual bank strategies has often proved ineffective."

Or to put in another way, big banks can make big boo-boos. Doh!

This morning the FSA has published a chunky programme of reform of how it behaves and how it regulates financial firms, and - as important - proposals to change the very important supra-national rules that constrain banks' activities.

Much of what it wants will be seen by many - especially those old enough to have lived through a few economic cycles - as simple common sense.

And 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.

For example, in the stuffy old days of the 1980s, banks would routinely tuck away capital for a rainy day - for a possible rise in defaults during an economic slowdown - by making "general provisions" during the good years.

Guess what? The FSA thinks that a return to something like that - what it calls an "economic cycle reserve" - might be a jolly good idea: bankers of a certain age will allow themselves a wry smile.

In general the FSA's plan can be summarised under a small number of headings:

1) it wants banks to hold a great deal more capital as protection against potential future losses;
2) it wants banks to hold a great deal more cash or liquid instruments as a protection against a drying up of finance;
3) there should be much better monitoring of credit conditions in the economy as a whole, to assess whether a dangerous boom is being stoked up - and the monitoring would be carried out by the FSA, the Bank of England and the International Monetary Fund;
4) there should be a new power to increase how much capital banks are obliged to hold relative to their loans when the economy is doing well, to put the brakes on lending before indebtedness increases to dangerous levels;
5) bankers' pay should be "designed to avoid incentives for undue risk taking";
6) banks should be deterred from taking excessive risks in the trading of securities and investments, by making it much less profitable for them to do so (this can be done by forcing them to hold more capital against their trading books);
7) a new European institution should be set up that would be "an independent authority with regulatory powers, a standard setter and an overseer in the area of supervision".

There is a good deal more. But those are the big points.

One of the FSA's more contentious conclusions is that it's not "feasible" to separate retail banking - or banking for individuals and small businesses - from what it calls "market making" activities.

Some have called for such a separation, because in theory it would protect the important payments system and the deposits of ordinary people from what the governor of the Bank of England calls "the casino trading of an investment bank".

Mervyn KingStrikingly, Mervyn King - the Governor - said only last night that "we need a public and informed debate on the merits of the arguments".

Presumably he won't be pleased that Lord Turner apparently regards such a debate as futile.

Lord Turner does however want there to be a debate on a number of other resonant questions.

Should the FSA regulate financial products in a much more explicit and detailed way?

Should it for example instruct banks that they shouldn't ever provide mortgages equal in value to more than a certain percentage of a relevant property's value or to more than a certain multiple of the borrower's income?

Should it prohibit investment banks from marketing products even to sophisticated professional investors that are regarded as too complicated or potentially dangerous?

And if it weren't to do either of those things, should it have a toolkit of "counter-cyclical" powers that would allow it - for example - to temporarily prohibit 100% mortgages, as and when the housing market is overheating (yes, that will happen again, one day).

There's a good deal to chew over.

But as Mervyn King said last night, there's probably no great rush: we have to get through the global slump first before it becomes a matter of urgency to protect ourselves from the dangers of the next boom.

UPDATE, 14:00: Lord Turner's proposals to make the financial economy safe again will have quite an impact on Britain.

They will lead to a permanent reduction in the amount of credit provided by banks to households and businesses - because banks will be able to lend a much smaller multiple of their capital resources than they have been doing over the past few years.

That will mean that the UK becomes less of a debt-fuelled economy.

Which many would see as a good thing. Because on most measures, households, businesses and the public sector have all borrowed too much over the past few years.

But we shouldn't pretend that this change in the structure of our economy will be free of costs.

For a good few years, and when the recession is over, our growth will almost certainly be lower than it has been.

And there'll be a second drag on growth.

The FSA is imposing big new burdens and expenses on financial innovation - because so much of the innovation of the past few years, especially the alchemy of turning subprime loans into gold, turned out to be toxic.

But, again, the City of London was a world leader in this innovation. So less of it - and there will be a lot less of - will mean a smaller City.

Which many would describe as a price worth paying. But we shouldn't pretend that there will be no price at all for sanitising global finance.


Page 1 of 3

  • Comment number 1.

    There was no mention of inflation statistics which do not currently include house prices which are allegedly vital.

  • Comment number 2.

    Hmm, none of this is exactly rocket science, and is all conspicious by it's absence from the former regime. Is Mr Brown whistling nervously and shuffling his feet now this has been released?

  • Comment number 3.

    No mention of 'Off Balance Sheet' deceptions.

    More clarity is required in everything that banks etc get up to, but the new secrecy rules on bailouts are a retrograde step that only encourages speculation on the true state of banks and others finances.

  • Comment number 4.

    And another thought, banks are graded for investment purposes, why can't they be graded for the purposes of access by consumers?

    What if, in return for a full government guarantee, a bank could opt to be bound by a charter that would limit the amount of interest it could charge and pay out, guaranteed to hold a higher capital ratio and would be prohibited from dealing in certain financial instruments or markets. In other words it would guarantee to be a boring high street bank of the type we all need.

    Banks that did want to dabble in more exotic things would not be fully guaranteed and the risk factor to investors would be higher, but this should be flagged up in advance so savers can judge for themselves, kind of like a cinema style rating system.

  • Comment number 5.

    Robert, whilst all this seems like stating the obvious, I heard Gordon Brown talking about better regulation of the "shadow banking system". I assume he is referring at least in part to the Derivatives Market. Given that nobody seems to be able to explain EXACTLY how this market works and that BIS valued it at over 1.2 QUADRILLION DOLLARS, I'm not entirely sure what the point of "less risk" will actually mean. If the Derivatives Market contains significant risks (and it does) and even a small part of this turns out to be "toxic" (probaly true since insurance compaines are heavily exposed to it such as AIG, and remember what happened to them) then forget the FSA ideas. We're sunk! How so? Well 1.2 QUADRILLION DOLLARS is 30x the worlds GDP (or WDP).

    Who's going to bail that out if it turns (more) rotten. The collapse of the housing market and related mortage debt will seem piddling compared to THAT. Perhaps because it cannot be bailed out or rescued is why nobody wants to talk openly about the Derivatives Market (except Warren Buffet who thinks it's Armageddon in a Contract).

    Can you shed some light on how the FSA might try to regulate a 1.2 QUADRILLION DOLLAR debt market? Makes a USD700billion bailout look likes childs play...

  • Comment number 6.

    There is one thing that both natural and man-made disasters have in common. After the event we use a vast amount of energy, money, resources, and usually blame, to ensure that we do not become repeat victims.

    Unfortunately, the next disaster will be the one we haven't thought of, or for most people - haven't thought that we hadn't thought of....... such as........

  • Comment number 7.

    It is odd that the FSA does not want to separate retail banking from `market making'.

    If I have saved a few thousand pounds in an account to buy a car, a holiday or invest in my old age the last thing I want is some keen banker, and I use that term advisedly, putting it onto what could be described as a one way win on a dead-cert in the 1530 at Newmarket.

    I am moving more of my savings into the mutual sector for the simple reason that I want it there when I come to get it. If Lord Turner understood things like markets and competition he would take that idea on board.

  • Comment number 8.

    Stricter national bank regulation and oversight is very much needed. What surprises me is the complete absence of a serious discussion of tax havens and offshore banking as a key contributor to the shadow banking system which has brought whole countries to the edge of bancruptcy.
    Why the silence? Are too many well connected persons
    (or their relatives, friends, business partners,or even journalists) themselves involved in offshore banking and tax havens?
    Trillions of pounds are stashed away in tax havens and nobody is calling for transparency? How about a Panorama programme just on offshore banking and tax havens?
    You can find key facts for this necessary discussion at:

  • Comment number 9.

    Does anyone know whatever happened to the golden rule and the economic cycle? ;-)

    The BBC etc (who were previously very concerned with this) have all gone quiet.

    Therein lies ones answer to the piffle being propagated on here! In fact I find it insulting to my intelligence, we all know the script and YOUR labour party are finished Peston (This time for good)

  • Comment number 10.

    Today we have one blueprint of how to make the global financial economy safe for us to swim in again.

    Speak for yourself Peston, I for one will not trust them with another penny. I don't care what the product is, the whole lot has been found out as the greatest Ponzi ever.

    Too late I'm afraid.

  • Comment number 11.

    At first glance this seems like common sense as you say Robert. However, it seems that the government and yourself fundamentally misunderstand risk. And as some have commented here it is risk and it's quantification that is at the centre of these whole mess. In fact, I suggest, if you have not already, read the recent article in Wired . See

    While this is a simplification in some ways it does illustrate the problem quite nicely.

    This entire mess was caused by a desire to quantify and minimize risk. Bankers and everybody else thought they had a very accurate way of measuring and thus pricing risk. So in actual fact they were very confident that they weren't taking risks at all. So let's be clear. Bankers were NOT taking massive risks. Their problem was not understanding risk. Subtle but different. They believed that they had new tools and products that allowed them to make very large sums of money and take no risk because it could all be accurately assessed.

    So what of the new FSA rules then? Well, there are two scenarios here if the rules 5 and 6 are implemented and risk is avoided.
    1) People take no risks. Opportunities to make money will be more limited and more hotly contested meaning that less money is made. No growth ensues. Bad.
    2) People take risks that are quantified and deemed acceptable. Eh. That's where we are right now. Bad.

    Those of us who work in industries that have high risks have been in this process for 10-15 years. Companies become risk averse and in the short term it's great but in the longer term growth fades and you have to take bigger risks to stay afloat. Just have a good look at the struggles in the pharma market where the big boys have tonnes of cash but no new products because they were scared 10 years ago to take risks. That's where banking is headed.

    I think the FSA would be much better served not talking about risk. All the other points make sense and on their own could encourage banks to think much more clearly about their approach to risk. Risk is an untamable beast I'm afraid. But you do need a bit of it just to keep you on your toes.

  • Comment number 12.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 13.

    As for greed not clouding the judgement of bankers, well, I believe greed is good. It leads to wisdom like this -

  • Comment number 14.

    "One of the FSA's more contentious conclusions is that it's not "feasible" to separate retail banking - or banking for individuals and small businesses - from what it calls "market making" activities."

    I think the public deserve to be able to place their funds in a low risk retail bank, if that's what they want to do.

    Why won't the FSA make the distinction between highly-regulated retail and risky "casino" banks?

    Where are the arguments for not doing so?

    The taxpayer can't go on underwriting the complete banking system, including the gamblers, for evermore!!!!

  • Comment number 15.

    Whilst not directly related to this post, has anyone else been struck by a delicious recent irony of the cyclical nature of our financial world ?

    "This week the prime minister was proud to launch the new 'people's bank' accessible to all at their local post office"

    - Harold Wilson - 1968 - Girobank.

    My parents had a Girobank current account for many years - and in the days before the invention of the cash machine you could pop into the village post office for cash long after all the banks had shut - as well as saving the hour round trip to town to get to one.

    .....privatised by the tories in 1989...

  • Comment number 16.


    Robert wrote:

    One of the FSA's more contentious conclusions is that it's not "feasible" to separate retail banking - or banking for individuals and small businesses - from what it calls "market making" activities.

    I guess what else would you expect from and ex banker/master of the universe.

    'In the United States, the pursuit of financial deregulation crossed the Rubicon with the repeal of the Glass-Steagall Act, which had been established in the wake of the Great Depression. In the heady bubble years of the 1920s, American commercial banks, whose traditional function was simply to take deposits and make loans, plunged into the roaring bull market, trading on their own account, underwriting new stock issues and participating in reckless speculation. President Roosevelt implemented Glass-Steagall in 1933 to prevent Main Street commercial banks from being exposed to the vagaries of Wall Street in the future. As Keynes, himself observed: "When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done."'
    Extract from a paper written by Australian PM - Kevin Rudd


  • Comment number 17.

    The root causes are personal greed for wealth, power and vainglory, as well as the gross inbalance between personal risk (almost none) and rewards.

    We cannot quickly change human nature but we can personalise, or even criminalise, the risks which must be in balance with the rewards.

    Everything else like prudence, diligence, genuine hardwork will follow, with or without regulations.

  • Comment number 18.

    Number 5 - Go on then Robert try to explain the 1.2 quadrillion dollar debt problem and its potential for damage! This should be good.

  • Comment number 19.

    Of the 7 'big points' you list, 1, 2, 3, 6 and arguably 5 could AND SHOULD all have been carried out under the existing regime (but weren't because Gordon Brown had instructed the FSA to back off). Even 4 might have been, at a stretch (although highly unlikely). 7 is new, but can't be delivered by the UK alone.

    In other words ... horse, door, stable, bolted ...

  • Comment number 20.

    A lot to chew over here and some sensible outcomes look possible.

    It will certainly contain the excesses of house prices if you have to limit your mortgage to 3 times what it says on your P60 rather than the “liar loans” and NINJA mortgages of recent times.

    Of course the more cynical amongst us may see an opportunity here for another Big Brother government database to enable the lenders to validate your income against centrally held tax records.

  • Comment number 21.

    1. At 12:04pm on 18 Mar 2009, Toldyouitwould wrote:
    There was no mention of inflation statistics which do not currently include house prices which are allegedly vital.
    I agree 100%. The CPI inflation figures also do not include council tax and other essentials that the population must pay on a regular basis.
    However, it does include items such as DVD players which people would generally purchse once every 1/2/3 years?
    If interest rates are influenced by using these CPI figures, shouldn't inflation figures reflect price increases/decreases of essential items?
    If not, it could look likes CPI figures can be manipulated so interest rates can be set artificially low which generally increases the availablilty of cheap credit which could cause a massive credit/housing bubble...........................hang about?

  • Comment number 22.

    This all sounds so obvious to me. It just looks like everybody who should have been wide awake has been sleeping on the job over the last 5 years. I will never understand why the govenment never stepped in years ago. There is no excuse. Robert, before all of this blew up what were you writing about? I can't recall any dire warnings.

  • Comment number 23.

    Finally! Someone has said that there is no rush! That is what has been the mistake from the beginning of this recession. The media pile pressure on the government to do something so they rush into a VAT cut and borrowing billions. They need to sit back, take stock and debate this properly so that when they come up with a solution, it will be a durable and workable one agreed by the FSA and the BoE.

  • Comment number 24.

    "The financial crisis has challenged the intellectual assumptions on which previous regulatory approaches were largely built, and in particular the theory of rational and self-correcting markets. Much financial innovation has proved of little value, and market discipline of individual bank strategies has often proved ineffective."

    Had the banks been allowed to go bust, I can guarantee you that the theory of rational and self-correcting market would have dampened the enthiusams of speculators/investors for a VERY long time.


  • Comment number 25.

    As our piratical friend has observed (previous blog #87), this is a report written by a banking insider, reluctant to clip the wings of this former associates. Does he still have any personal financial interest in this area I wonder?

    I also commend Kevin Rudd's article mentioned by previous bloggers:

    However Robert, important as this is, you are the business editor, not the banking editor. Please write SOMETHING about what's happening in the real (ie non-banking) economy to real people. How is this crisis affecting wages in different sectors? How is this feeding back into the rest of the economy? Which businesses are most likely to survive, and which not?

    I'm sorry to criticise, but you seem to rely too much on leaks and press releases. Do some real research please. DO YOUR JOB!!!!!!

  • Comment number 26.

    bankers' pay should be "designed to avoid incentives for undue risk taking"

    When bank-wrecking (self enrichment without due diligence) causes a major bank to collapse, it is the public that suffers possibly over several generations. Consequently it should be a criminal offense comparable to high treason. Those who commit it should be stripped of all of their ill-gotten gains and sent to prison.

  • Comment number 27.

    #8. At 12:30pm on 18 Mar 2009, invisiblehandadvisor wrote:
    'What surprises me is the complete absence of a serious discussion of tax havens and offshore banking as a key contributor to the shadow banking system which has brought whole countries to the edge of bancruptcy.'


    BTW - Panaorama recently did make a programme about tax havens (you may even still be able to catch it on i-player). However, it didn't mention the above fact.

  • Comment number 28.

    The housing/mortgage crisis has been caused by the totally stupid assumption that house prices can only go up. At last we have common sense possibly coming back. Any purchaser should do the following calculations based on their circumstances before even approaching a lender, and the lender should include it as part of their procedures:

    Salary 100
    Tax and NI (18) average rate suffered
    Council tax etc (20) inc utilities, transport
    Living costs (15) unavoidable
    Living costs (15) desirable luxuries, holidays
    Mort int (15) based a 3x sal and 5% interest
    Int margin (8) in case rates rise
    Risk margin (5) in case lose job for any reason
    Surplus (4) what is left over for genuine luxuries
    Remaining nil

    Obviously personal circumstances may vary, perhaps enabling the mortgage/salary multiple to increase. There should be a reasonable self-financed deposit to protect the lender from falling values.

    If the result of the above is that you cannot buy…..tough luck. House prices will eventually fall to help you out or you have to save/inherit a bigger deposit.

    One of the best mortgage innovations of recent times has been the off-set mortgage, enabling even temporary savings to go against the mortgage and reduce interest charges. In the days of my first mortgage it was sickening to earn a measly, taxable return on savings whilst paying high, non-tax deductible interest on the mortgage.

  • Comment number 29.

    Very good article RP, respectfully though i would suggest you missed the following other silly ideas:

    Shareholders / Investors will be blind to risk as long as they receive every increasing dividends.

    Borrowers will continue to get into higher levels of debt against equity in property prices that will always increase.

    Government will turn a blind eye as long as they are receiving taxation revenue.

    Regulators will be people who will be of the old school network and not challange the status quo.

    I have been very critical of the banks in the past, but we do need some recognition that the whole social economy needs to accept and show responsibility in its actions

  • Comment number 30.


    Since 1997 we've had no idea how to run economy with the latest manifestation being the banking industry. There's been plenty of smoke and mirrors from the Government who treated the banking industry as a regular tax dividend. The same can be said for the real estate market and (thus mortgage granting).

    As other previous commentators have said can you please focus on the real economic issues and flaws in thinking by current incumbents at Cabinet level, Bank of England, FSA et al.

    The real focus should be how are we going to finance the national budget going forward given the gaping holes in taxes raised and the impact of the financial bail-out, the latest quantitative easing wheeze on the economy at the local level.

    Or is it asking too much?

  • Comment number 31.

    The rationality argument is dangled in front of us and then yanked away again. Note that Turner's analysis opens with a discussion about "rational, self-correcting markets" but none of his recommendations are anything to do with rationality?

    The point about rationality is not about bank employees - which arguably have behaved more rationally than anyone else, in ramping up risks and bonuses while protecting themselves from the inevitable downside. It is about everyone else in the economy, who:

    • bid up house prices on the basis of selling them on to the next sucker;
    • trusted fund managers and bank employees to act in their interests when designing structures for their money;
    • used the recent past as a guide to the future and didn't stress-test their scenarios when valuing assets

    What Turner needs to include in the FSA's new purview is an evaluation of the rationality of the population as a whole. Irrational investment decisions are the dominant pro-cyclical factor - direct action on this will be far more effective than expecting the banks' capital cushions to defuse future bubbles:

  • Comment number 32.

    I am still convinced that the governments (of all affected countries) do not have a real clue to the recession but are just hoping that their palliatives work. I think they have no better idea than the many 'ordinary' people on the high street.

    Regulation whether tight or otherwise has to be thorough and involve not only those with banking experience but also a few people who have commonsense (which has seemed particulary lacking in the great and the good that were on the boards of the banks that have suffered).

    Directors, boards and auditors should be removed from office and prevented from undertaking these roles for a period of time say 2-3years. This way they might be more diligent in their oversight etc.

    Money put in so called tax havens for tax avoidance by companies, banks and individuals must be subject to some tax as well as being transparent to the authorities.

    Politicians seem to have been happy to hang onto the coattails when the going was good but profess shock when things turn bad. Let's stop pussy footing around

  • Comment number 33.

    #5 Jedi_nights:

    ".... I heard Gordon Brown talking about better regulation of the "shadow banking system". I assume he is referring at least in part to the Derivatives Market. .......If the Derivatives Market contains significant risks (and it does) and even a small part of this turns out to be "toxic" (probably true since insurance companies are heavily exposed to it such as AIG, and remember what happened to them) then forget the FSA ideas. We're sunk! How so? Well 1.2 QUADRILLION DOLLARS is 30x the worlds GDP (or WDP).

    Perhaps because it cannot be bailed out or rescued is why nobody wants to talk openly about the Derivatives Market (except Warren Buffet who thinks it's Armageddon in a Contract)."


    Warren Buffett is probably correct. This is the real Elephant in the Room.

    It is probably the reason there was hesitation bailing out the banks. The depth of the abyss is not known for the participants.

    I suspect that the G20 sherpas have been wrestling with this.

    Someone blogged that Derivatives can be useful. Seems like a nuclear hand grenade to me.

    They will just have to be cancelled and banned.

  • Comment number 34.

    No recommendations to limit mortgage multiples or to mandate deposits - looks like we have done our job as an on line focus group, pretty effectively

  • Comment number 35.

    HA! well at least this time Peston has mentioned that Turner 'worked' for Merrill Lynch for a few years; Turner was a bit more than a simple worker and it's worth noting which years he worked for ML too

    the fact that Turner is saying that it wouldn't be 'feasible' to separate retail banking from investment banking again, which is essential, tells us all we need to know, as many other posters are saying

    we're having the wool pulled over our eyes, mateys!

    interesting to hear Lawson just now saying that retail and investment banking should be separated again, and that Turner is wrong; I'm no fan of Lawson but at least he is trying to discuss the issues; keep the banks smaller and tightly regulated; and I'm not sure we have lots of time to think it over, as the current lot are no doubt already embarking on a new series of high-risk strategies, safe in the knowledge that if it goes wrong the taxpayers' money will be used to cover it

    the moderators allowed this before, so I repost my earlier Turner comment:

    87. At 10:45am on 18 Mar 2009, somali_pirate_SP500 wrote:

    this is clearly a WHITEWASH; the City is not going to be regulated proactively and properly and it certainly won't regulate itself

    the great 'red Adair' Turner was, as the FSA bibliography confirms,

    'from 2000-2006 Vice-Chairman of Merrill Lynch Europe'

    so he was high-up in ML for a long period (6 years!) embracing the years when the worst and most extreme risk-taking excesses were being committed; does anyone need reminding about Merrill Lynch, the huge black hole discovered in their accounts last autumn and, to cap it all off the absolutely massive bonuses they gave themselves on the day before they were absorbed into BoA???

    I rest my case and I'll knock Cherie Blair into a cockhat in a courtroom any day, thank you very much

    and what about the terrible unemployment figures!!!

    and these figures do not include all the workers who have gone to part-time working, assembly-line shutdowns, from high-paid jobs to KFC and Subway jobs, discouraged workers, wealthy ex-City workers who don't qualify for JobsPlus or whatever it's called, all the self-employed builders who now have very little work, all the East European workers who are simply going home again, all the people running small businesses who are hanging on by their fingernails etc etc

    no-one knows what the true unemployment figures are rising by at the moment! and that's before GM et al and all the auto parts suppliers start closing in a month or two

  • Comment number 36.

    As you hint at, we used to have greater regulation, and this government removed it. Whatever the FSA set as regulations now (when, as others have said, we don't need them), you can bet will be gone before the next time we do need them.
    In some ways the better solution is for more information for the customer (and let the market do what it does best). If each investor knows more about the investment profile and practices of the banking institutions, they can decide whether to go with riskier (and therefore more lucrative) investments, or stick with safety.
    Of course any requirement for this kind of openness could also be removed by a future government - but there is less of an upside incentive for them to do so.

  • Comment number 37.

    No 9 Javaman 1984

    Ah yes the economic cycle and the golden rule...

    the gold was all sold off at the bottom of the market by Brown and the economic cycle is a twisted wreck lying rusted in the bottom of a hedge after the owner took it to Gordon's garage. Gordon removed the brakes and fitted a spangly motor (which he didn't really understand but everyone else said was great) before painting it red and telling the owner that it would go twice as fast and never, ever crash....

  • Comment number 38.

    Don't get me started on inflation figures - which are generally a complete fabrication based on the fact that plasma TVs, etc fall by 50% in a year or so.
    This doesn't accurately represent real life - more correct is that people spend the same amount (ish) on a new TV but get better quality. Which is a 'quality of life' improvement, but not a price deflation.
    Personally, I had to replace a TV recently and spent £320, compared to £260 three years ago when I bought the old one. How is that not price inflation?

  • Comment number 39.

    What does the FSA want? Applause? Confidence that they are doing the right thing?

    Talk about closing the door after the horse has bolted.

  • Comment number 40.

    I think "market failure" is taught in chapter 2 of any gcse economics textbooks. Is there any evidence to back up what you are saying in point 2?

  • Comment number 41.

    #3 TheNewPonzi:

    "No mention of 'Off Balance Sheet' deceptions."


    Like PFI?

    Like true unemployment figures?

    It would be interesting to know what M3 money supply is. Another cover up.

    LBS Compulsory MBA subjects include "Ethics and Corporate Social Responsibility" and, of course, "Decision and Risk Analysis".

    I think these courses need a little revamp in the circumstances.

    Perhaps an MBA Oath?

  • Comment number 42.

    This all too complicated and therefore unworkable! JUST STOP THE CASINO METHODS OF INVESTING.

  • Comment number 43.

    I'm afraid this is much as we had suspected - a regulator who regretfully cannot think much past the mantra of "well, we need more regulation".

    Adair Turner has been talking about a 'revolution' - this is nothing of the sort, just a few extra measures here and there, which conveniently leave the hallowed circle of bankers to continue playing with other peoples money and ripping them off.

    He's a nice chap, indeed very intelligent, and well meaning no doubt.

    However, he just does not 'get' the sort of real revolution we need here. His proposal lacks imagination and fails to grapple with the scale of the reform required, although maybe he feels he cannot propose any rather more radical reforms, as this would be outside his brief as regulator - which I suppose is fair enough.

    The sort of scale of the issues we need to consider are (and I'm quoting a few contributors to this blog here as well) as follows:

    - should we remove limited liability - to some degree - from all financial intermediaries (this would include banks, insurance companies, investment funds, hedge funds etc)? This would persuade shareholders of banks pretty quick to increase levels of control just a little....

    - should we enact new laws specifically targeted at Directors of financial intermediary companies to ensure that they suffer penalties if the gambles they take with depositors money does not pay off? This would make any bank Director think very carefully about reckless gambling.....

    - should we introduce legislation to force all financial intermediaries to divulge into the public domain at least the same information that they have to provide to HMRC and indeed even more?

    - should we not ensure there are 'firebreaks' in the money system, whereby we can let the riskier institutions fail without threatening the systemically important ones - a separation between proper banking and so called 'investment' banking/gambling would seem to be a very good start here?

    Adair Turner's pitch here does absolutely not put the monetary system of the UK back in the hands of the people, but allows it to continue to be the domain of the cosy group of bankers, ex-banker regulators and 'mates' of which, one has to say, his board is made up of prime examples.

  • Comment number 44.

    Fast forward 15 years:

    The economy is doing well across the Western hemisphere, people are accumulating wealth once more. Shareholders begin to question whether banks really need to sitting on so much capital and whether it couldn't be put to better use.

    Some countries start to deregulate and banking profits increase as a result. Pension funds and other investment houses join the call for deregulation at home. Politicians warn about what happened last time. Bankers, shareholders, pension funds all say that that was 15 years ago and we've all learned our lesson.

    The public demand to know why our banking sector is falling behind that of our competitors, many of whom are now deregulating "to meet the needs of a changing economy".

    The opposition party declares that, when in power, they will announce a policy of financial deregulation to "free up the markets".

    They get into power, deregulate and the economy surges. Houses prices rise as people gain access to mortgages. Consumer spending explodes...etc...etc...etc...

    Of course it would never happen again. It couldn't happen again.

    Could it?

  • Comment number 45.

    So now we can be sure all this money the BoE is printing will sit in bank vaults.

  • Comment number 46.

    Peston and Zanu Labour - dross.
    Sir Fred should be taken on by HMG - he has run rings around them and I hope he enjoys every penny of his pension - as I am sure the saviour of the universe at No 10 hopes as well!!! otherwise Sir Fred MAY have to dish the dirt on Myners ( an expert????? ) and useless Crash Gordon.

  • Comment number 47.


    Points one to 6 seem to me to be a mirror of the regulation that the Conservatives handed over to one Gordon Brown which he set about dismantling.

    So it only took them 11 years to realise that the system in use was the at the start had been a good one and the one they introduced was bad.

    Sack the lot of them and give cuddly Ken Clarke his old job back please

  • Comment number 48.

    A huge amount of hindsight in these ideas, and somehow I don't think that you are going to iron out the human factor in all this.

    With the horse now away, it might actually be cheaper to sell the stable rather than fit the new lock, before we buy another equine.

    I do actually believe that the FSA should be subservient to the Bank of England, and if our politicians do actually want an independent BoE then it must be allowed to freely comment on the fiscal plans, and give much stronger feedback to our incumbents to allow greater debate on government fiscal policy.

  • Comment number 49.

    And, after the dust of the credit crunch settles and the markets return to normal, how long will bankers with liquidity at their fingertips resist the temptation to gamble just a little?

    See you all back here in about 15-20 years.

  • Comment number 50.

    If you look at the historical record you can see that many people were saying these were huge weaknesses in banking many years ago. Let's not pretend that this is only visible after the fact, it's simply that now the game's up the people who had been profiting this whole time have to admit it too.

    The basic problems will remain under this new regime because short term gains are still those incentivised. Take the issue of "incentivising bankers not to take undue risks". Apart from being fairly meaningless, the point is that through complex financial instruments and slightly shady accounting practices the goal was to make risks look much smaller than they really were. Without very strong regulation therefore this is not going to happen.

    As Galbraith pointed out financial catastrophes occur for pretty much the same reasons once every generation and those who make the decisions that could stop this are just yes men by this time, because the incentives are to be a yes man. If you're a naysayer you'll get sacked.

  • Comment number 51.

    I do find this furore mildly amusing. Not so much because it is unjustified, it obviously is, but simply because of how futile this is.

    The fact of the matter is that it will probably take another 80 years for this to happen again and by that time we'll all be in the ground.

    Any laws that are passed now to "prevent this all happening again" will be repealed when some leader thinks he/she has stumbled on the formula to guarantee neverending economic growth. It's happened countless times in the past. Do you not think these same things were discussed and pontificated over after the South Sea Bubble burst and after the 1920's Wall Street crash? Do you not think they also said the financial world was broken and needed to be changed?

    But sometime in the future we'll again approach the situation where plumbers and low-level accounts clerks are able to purchase £million pound condos and flip them a few months later for a healthy profit. We'll again approach the situation where credit becomes too cheap and freely available.
    And then it'll all happen again. Maybe in a country such as India or China who'll be bohemoths in 100 years time and won't remember this quite as vividly as in the West. Not to say we remembered the lessons learned. As the global economy grows the effects in Britain will be as severe as now.

    And the best part is that between this time and then there'll also be countless booms and busts of dotcom'esque proportions to deal with.

    So all this is doing is urinating in the wind as the one thing you cannot legislate or regulate is human greed and stupidity. Not just the bankers but us all. We all participate in this economy and contributed to this mess. Any home owner, anybody with a credit card and anybody who has bought into the consumer society shoulders some blame. Perhaps not in quite the same proportions as Fred Goodwin and his merry band of men, but blame nevertheless.

    Print this out and give it to your grandchildren. You won't need it but they surely will.

  • Comment number 52.

    #33 and #5

    The depth of the abyss indeed is the problem - and I'm not just mindful of the financial one.

    What is clear is that we - the common kine - will somehow be required to fill any size of cavernous hole through coercive taxes and quantitative easing, but how should it be valued and by whom?

    Say you go into a casino and convert several gold coins into a pile of chips. You win or lose big-time - what simply amounts to a pile of chips. What if the casino decided that if you win, the chips remain precisely that - just chips - worthless pieces of plastic; if you lose then you must pay the deficit in gold?

    Or how about that mainstay of Empire - the Hut Tax? You may have long had a farm in Africa (at the foot of the Ngong Hills, perhaps), but suddenly you are forced to pay tribute to the Great Queen. Not in the form of the wealth you understand (livestock, produce), but in the form of pieces of metal that you can only acquire by the sweat of your brow in a form of debt-bondage (and behold, whose inscription is on the metal?)

    Am I the only one who finds it amazing that we have somehow abrogated the ability to set the rules?

    An enormous black hole has opened up, not on account of any of us, nor are we able to ascribe value to it, but we are the ones who must surely fill it.

    Multitudes, multitudes in the valley of decision.

  • Comment number 53.

    #35 somali_pirate_SP500 "HA! well at least this time Peston has mentioned that Turner 'worked' for Merrill Lynch for a few years; Turner was a bit more than a simple worker and it's worth noting which years he worked for ML too"

    Quite! It's becoming clear that he is barely a better choice for the FSA than Crosby was. We need to purge from government and regulation all those who have a interest in defending their record over the last 10+ years. This obviously includes GB and AD. as well as Turner. It probably also includes George Osborne, as his links with hedge funds are too close. I'm not entirely against recruiting ex-poachers as gamekeepers, but only those who have the wisdom and courage to confess past errors/crimes.

  • Comment number 54.

    Nothing on hedge funds. I would like to see them obliterated from the financial services landscape once the new age regulation gets going.

  • Comment number 55.

    That's brilliant - well done FSA

    So to summarise:

    1. Don't over lend - particualrly to those who cannot pay it back.
    2. Don't take unecessary risks on lending (i.e high returns = high risk).
    3. Make sure you have enough in reserve for a rainy day (recession).
    4. Study the market for warning signs of a downturn.
    5. Don't have bonus schemes that encourage 1 & 2.

    The FSA thought that market forces would correct the greed, the greed and the.......greed.

    Unfortunately greed is not a rationale.

    I think that most of us `simple folk` could have told you that.

    Can I have my bonus/pension/Porsche now please?

  • Comment number 56.

    "Markets" have had a very bad press through all of this. But think back to Northern Rock.
    Did the FSA spot the danger? 5 visits of which three were on the same day - how do you explain that: three chaps off on a jolly to Newcastle together, or they turned round at the door to ask another question - twice. Clearly the FSA were asleep on the job.
    Did the Government sound the alarm? Not a whimper from them and they gave the Post Office banking franchise to Bank of Ireland! How much due diligence did they do on that one?
    Was anyone else awake?
    Well, actually the markets were. It was ordinary people in the money markets who stopped lending to Northern Rock which brought about its downfall. How do you know when someone has borrowed too much? They cannot borrow any more.
    So in my book NR should have been allowed to fail but the depositors bailed out. Ditto B&B. The difficulty came when HBOS found it could not borrow more. Because it was both an overenthusiastic investment bank and a retail bank the authorities saved both components "because it was too large to fail". Think what a great lesson it would have been if it had failed (and the depositors bailed out). No more equity stakes in speculative builders eh? I guess that's just where our money is going right now - propping up investment books that no-one wants.
    How much better if our banking rescue funds had gone to good banks. Who are they? Co-operative Bank for one and there are many others.
    Sending good money chasing after bad is a dreadful way of doing business. All our money is now in bad banks!

  • Comment number 57.

    #11 keithcspencer

    Interesting article and interesting post - however you are falling into the same trap as many others in this area..... the presumption that in some way we can get back to the sort of perpetual motion money making that we have in the past 10 years - it didn't work and it aint happening again!

    You give us 2 options if rules 5 and 6 are implemented:

    1. You say no risks (not so cleverly left the UNDUE out) would make less money...... and your point is? Unfortunately the banks seem to have left the general public thinking that when they left their money in a Bank, the Bank paid a little interest but took no risks with their money. Behind the scenes though they changed the rules

    2. (The word EXCESSIVE left out this time) Bankers were taking HUGE risks and they know it. What they did was Creatively Account for it. The article you link to explains the risk and it seems you understand it... however if I decided (at 47yrs of age) to leap of my desk, due to my dodgy knees you might estimate a 20% risk of injury........ what you (and Mr Li, in his Gaussian Copula Function) seem to miss was probability. If I jump off everyday then injury is inevitable......... in exactly the same way the risk in the financial services markets seems to have been calculated as a one off. Unfortunately running a scheme and estimating something like a recession at .001% is fine, unless you run it indefinitely and have no safety net in place. In those circumstances the probability of failure become 100%

    Running 2 systems might be the solution and give people the choice...... one where banks act a safe low risk, low interest places to leave your money... and the other could be places that pay about the same level of interest but take huge risks with your money and pay themselves very well irrespective of whether they have lost your money – but they would have to declare the risks on large neon signs, like a Las Vegas Hotel, so we weren’t confused.........
    ...we could call one Banks..... and the other Building Societies!

  • Comment number 58.

    im not that impressed with the b of e gaffer , mr m .king , hes got the thickest glass lens ive ever seen , i bet hes not short of a few bob and the mistakes hes made!!!! interest rates to low during the boom years mr king!!!. maybe your eyesight isnt to clever.

  • Comment number 59.

    Having read large chunks of this report, I conclude the most frightening thing is the horrific state of the nation's finances.

    They can tinker all they like with the regulatory regime, risk analysis and common sense banking. Look at the debt graphs for the UK for the myriad instruments referred to. We are completely and utterly @@@@@@. It is no wonder sterling is dropping like a Gordon Brown initiative.

    And they still cling to the Global argument. These wretches have the temerity to propose solutions for the rest of the world. How arrogant can they get.

  • Comment number 60.

    Lord Turner talks a good game - it will be interesting to see if he plays one - it would come as a pleasant surprise.

    It's a pity he hasn't taken action on mortgages. There's a serious need to reduce loan-to-value ratios and earnings multiples sooner rather than later. By the time the consultation paper is out in September and there's been time for feedback, probably a further consultation paper, more feedback etc etc we could be in the NEXT recession!

    The 'worry' seems to be that if banks all of a sudden start to lend prudently, then no-one will be able to get a loan. As I'm not aware of anyone who have died by having to rent a house as opposed to buying one, I don't see what all the fuss is about - lower multiples would drive 1st time buyer prices down and lead to better affordability - surely both are good things?

  • Comment number 61.

    Continued contraction of money supply leading to continued recession further compounded by continued currency depreciation leading to higher inflation leading to higher interest rates further contracting lending.......

    Large budget deficit
    Large current account deficit
    Low foreign currency reserves
    Decimated manufacturing base

    But we're definately much better placed than other economies right?

  • Comment number 62.

    Well, well...............what a remarkable idea."More Capital,Less Risk"-about as obvious as a faulty septic tank.The financial Gurus never fail to amaze me with their pearls of wisdom.So,it'll all be all right then once we start heeding the latest soundbites from our glorious financial industry?Oh,how reassured I feel.
    By the way.....I rang my endowment provider this morning-my "savings"have just lost £600.00 in four weeks and are £1500.00 down from last July.Let this be a salutory warning to other policy holders.I smell a rat somewhere..........

  • Comment number 63.

    Macca 60999 likes KeithCSpencer's (#11) comment

  • Comment number 64.

    #9 - Javaman1984

    What are you going to do? Hide your used banknotes under the bed??

    I wish people were forced to pass an IQ test before posting on these boards.

  • Comment number 65.

    #14 wrote "Why won't the FSA make the distinction between highly-regulated retail and risky "casino" banks?"

    because if they did make a distinction they would have to sort out the derivatives mess to allow the seperation of function from the retail banks and they don't have the first idea how to. In fact the only thing they are doing is waiting for all the toxic paper to become valuable again - as if it will!

  • Comment number 66.

    #44 roughets

    You may well be right. The economist JK Galbraith wrote a number of histories of economic/financial crises. He estimated that financial memory normally lasts no more than 20 years; commenting that regulation is increased after a catastrophe, but then relaxed when financial amnesia sets in.

    In his last book on these matters, "A Short History of Financial Euphoria", he commented: "In the first Forward to this volume, I told of my hope that ...citizens ...might be reminded that ... not only fools, but quite a lot of other people are separated from their money in the moment of speculative euphoria. ... I am less certain than when I wrote of the ... value of such a warning. Recurrent speculative insanity and the associated ... larger devastation are, I am persuaded, inherent in the system. Perhaps it is better that this is recognised and accepted."

  • Comment number 67.

    Can you shed some light on how the FSA might try to regulate a 1.2 QUADRILLION DOLLAR debt market? Makes a USD700billion bailout look likes childs play...

    Good point, Jedi_nights, and I look forward to hearing the explanation.

  • Comment number 68.

    I agree entirely. I personally saw this coming and I expect many others of the UK population did for many years prior. How the Government, the FSA and leaders of financials institutes failed to realise the risks from lending such ridiculous amounts of money goes beyond belief! The UK has had problems for the last 10 years not 18 months. For example, towns, cafes, bars were immensely more busy 10 years than they were 2 years ago. These idiots caused the boom and bust of our house prices. Haven't they worked out that steady growth in this sector will help stabilise an economy, therefore leading its way to giving a better quality of life for the population? For example, the cost of houses has led to less money in households, more mothers in work, more borrowing. Consequently we are now in payback time and will be for some time to come. Bring back house prices into UK Inflation figures!!

  • Comment number 69.

    My confidence in the report is somewhat reduced by their inability to create a report without glaring typos - one in just the third line of the report! Admittedly this one is entirely trivial but further on they state some figures for Foreign Direct Investment as INflows when analysis of the dat shows them to be OUTflows (page 35). So either they are incredibly careless (which is not a good recommendation in the current cuircumstances) - or else they don't know the difference.

    I resent having to pay for this level of incompetence when my business could easily go bust as a result of the efforts those in authority in Government, FSA and banks.

  • Comment number 70.

    51- VinChainSaw

    9.5 out of 10.

    (only reason I didn't give you 10/10 is to leave room for error. An old-fashioned practice, I know, but I suspect it may be making a comeback...)

  • Comment number 71.

    When will the Banks differentiate between their money and their customers money. Sorry, retorical question, to them it is all just money. But when I was a boy a bank had to maintain eight per cent of the monies lent as cash and a further 12 percent on short term, overnight, loans. The BOE was then quite able to increase these percentages to control the volume of 'paper' money being created.
    I expect this is far too simple in this new electronic age, but it worked.

  • Comment number 72.

    "But we shouldn't pretend that there will be no price at all for sanitising global finance."

    And many - including some considered to be quite affluent - are paying the price, hand over fist, right here and now, and not at some theoretical time in the future.

    Sadly, Lord Turner seems to have failed to consult adequately with ordinary people. (He probably asked various banking experts what their customers wanted, rather than asked the customers themselves).

    So, what he seems to be banking on (excuse the pun) is that there will be enough unalienated people left who will form an adequate customer base for an adequate amount of these more restricted and better managed loans.

    He could be wrong.

    My view is that he should look harder at making the banks more open and publicly accountable and doing huge amounts more to protect customers / consumers from avaricious banks, insurance companies, pension funds, and the like. If he put in the appropriate level of investor and account holder and policyholder and shareholder safeguards, then perhaps he might find enough people who would actually meet the more strigent criteria whereby the banks could now lend to them.

    Or perhaps he just hasn't noticed that many people are much poorer than they were a couple of years ago? 2 million unemployed people for starters. (Then add those who have lost out on pensions, share collapses, etc., etc).

    Oh Lordy, Lordy!

  • Comment number 73.

    #64 GHBRich:

    "I wish people were forced to pass an IQ test before posting on these boards."

    Perhaps if we forced the politicians and the bankers to have a test. Relevant qualifications would be good too.

    I doubt the politicians will make things less soft.

    MBA? Master of Business Apocalypse ??

    The qualifications do not seem to have been any help upon consideration.

  • Comment number 74.

    Regarding restriction of limited liability, I just received the latest copy of Private Eye, with a topical quotation from the Anglo-Saxon Chronicle.

    A.D. 1125.

    In this year sent the King Henry, before Christmas, from Normandy to England, and bade that all the mint-men that were in England should be mutilated in their limbs; that was, that they should lose each of them the right hand, and their testicles beneath. This was because the man that had a pound could not lay out a penny at a market. And the Bishop Roger of Salisbury sent over all England, and bade them all that they should come to Winchester at Christmas. When they came thither, then were they taken one by one, and deprived each of the right hand and the testicles beneath. All this was done within the twelfth-night. And that was all in perfect justice, because that they had undone all the land with the great quantity of base coin that they all bought.

    Never mind Chinese justice - let's have some good old Anglo-Saxon justice! ;-)

  • Comment number 75.

    Isn't it amazing how history repeats itself!

    "In 1931, the Pecora Commission was established by the U.S. Senate to study the causes of the crash. The U.S. Congress passed the Glass-Steagall Act in 1933, which mandated a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities."

    No matter what precautions we put in place over the coming few months they will slowly be unraveled over the next two decades by greed and power. The politicians and the bankers, the two equal causes of this current crash.

  • Comment number 76.

    "3) there should be much better monitoring of credit conditions in the economy as a whole, to assess whether a dangerous boom is being stoked up - and the monitoring would be carried out by the FSA, the Bank of England and the International Monetary Fund"

    Err, haven't the IMF been warning for years that our economy was unsustainable, property prices being unrealistic multiples of income etc ? But of course no-one took any notice. Why does Turner think that producing more figures that the government will probably ignore will prevent this happening again ?

    "One of the FSA's more contentious conclusions is that it's not "feasible" to separate retail banking - or banking for individuals and small businesses - from what it calls "market making" activities."

    This is the worst sort of nonsense. Does Turner really think the general public will not see through this ? Retail deposits provide the banks with capital to speculate in risky investments. They also prevent the bank from collapse. Why ? Because the government can't let a bank with significant retail deposits fail. Thus the investment bankers can make millions in bonuses and generate profits for their wealthy customers safe in the knowledge that if the gambles fail Joe Public will have to bail them out to protect his savings.

    Fortunately, what Turner thinks is largely irrelevant. The public will/are demanding safer banks free of the investment lottery. They will move their investments from banks associated with risky speculation to safe (and boring) banks. After all, it makes little difference to the meagre interest they receive. They no longer want to have rich people gamble with their money to make themselves fortunes and make the public pick up the tab when it all goes wrong.

    The policy of using retail banking to insure investment banking will stop, either by policy or by public demand. The game is well and truly up.

  • Comment number 77.

    If we have to keep talking for the moment on the banking/FSA/BoE axis, I would question the line that the FSA/BoE state about self-correcting markets (see above main RP comment).

    This is a very neat excuse for being asleep on the job. Self correcting markets by their own logic imply that markets 'get out of kilter' due to irrational herd behaviour or some other mechanism (otherwise a market would never need to self correct!). And there's plenty of historical evidence that finance in particular suffers from market irrationality.

    Following this line is no excuse for poor regulation (I note that this excuse originated from the US administration. Of course, nobody as usual has challenged this assertion made by the FSA. I note that this line is not used in the transport, telecoms, utility or any other regulated market. So why was banking any different?

    The answer is it wasn't - its just a convenient excuse for incompetent people at the FSA/BoE to trot out to continue to be paid and build vast pension rights which is the real scandal..........

  • Comment number 78.

    "UPDATE, 14:00: Lord Turner's proposals to make the financial economy safe again will have quite an impact on Britain.

    They will lead to a permanent reduction in the amount of credit provided by banks to households and businesses - because banks will be able to lend a much smaller multiple of their capital resources than they have been doing over the past few years.

    That will mean that the UK becomes less of a debt-fuelled economy.

    Which many would see as a good thing. Because on most measures, households, businesses and the public sector have all borrowed too much over the past few years."

    Not a bad thing in its self. House prices will fall because a house is onlyu worth what a person can afford to (borrow ) to pay for it. So more youngerster will be able to get on the ladder.

    As the well know Mr G Pollard used to say never put more than 20% into anything, then you limit your exposure if things go wrong!!!

  • Comment number 79.



    Does it occur to you that your IQ might not be sufficient either?

  • Comment number 80.


  • Comment number 81.

    It is hard to see how, gambling with or against commercial and private funding activities and raising the game so that risk levels on their activities lead to systemic crises, can be in the public interest.

    We need to know what went wrong what is still wrong, or could go wrong and we are in the awful position of depending on the guilty to explain their actions

    So lets also examine what's there.

    We need to know exactly WHAT went wrong, the current explanations of why the banks are begging from the public coffers aren't good enough. The excuse of 'Rocket Science' just isn't good enough.
    The bankers are paid a lot of money... let them work for it by presenting their case to the public.
    Let them work to make it intelligible.
    Let them provide a proper explanation of their risk measurement processes, and let them explain exactly what they didn't "know".
    Let them explain what was wrong, by how much, how they propose to correct this...

    Lets examine what should have been there

    For the kind of investment that the public are being asked to put into these rogue banks I would expect some very detailed explanations, and a broad ranging Public Enquiry.
    And Considering The Sums Involved a Public Enquiry needs to:
    Provide far better details on the failings of banks whether in respect of their liquidity, capitalisation, assessment of risks, unfettered expansion...
    Establish model banking behaviour, model risk metrics etc to act as a comparator for UK banking.
    Show how the recent historical malpractise of UK banks measures up against this.
    Consider if attitudes / mindset / ethics, or financial reporting standards have worsened decision making processes...

    Given that the public purse is massively exposed, how can we possibly ask for less.

  • Comment number 82.

    Dear Robert Peston,
    It was in a newspaper, that Lloyds-TSB for the previous 12 years had been sending money via what is known as a "stripping" system to so-called terrorist countries. This was discovered in America and they were going to take Lloyds-TSB to court, but in the end they payed a 650 million payout to America.
    A labour MP at a PMQ asked about this matter and the PM said he knew nothing about it and would write to him.
    Since that time, we have not heard a thing and did the British taxpayer have to pay any of this fine?
    Are you interested in this matter?
    Any chance of a reply?

  • Comment number 83.

    I'm still unsure why the FSA are still around. Surely such a failed organisation should have been abandoned as soon as it was shown to be a complete failure from top to bottom and the Bank of England reinstated as the guardian of our finances.

    Hanging on to failed quangos is hardly the way forward when fresh new thinking should be priority. These have been shown to be no more than tick the box regulators much the same as the other regulatory bodies this government put in place. They have all failed to do their job.

    At least the Bank of England can revert back to its policies of the eighties when banking was not in crisis. As you state they are only bringing back the same rules as they had then and although there were cycles of boom and bust they were never on the same scale as this one.

    Labour's mishandling of the economy in the 70's took 20 years to balance out. This government has made the same mistakes as Callahan on a massive scale so who knows if it can ever balance out.

    Trying to pretend that a new version of the FSA can come up with the right answers is quite ludicrous for they don't even know when other matters they overlooked are going to come back to haunt them

  • Comment number 84.

    Point 7 will never fly as it needs the consensus of the EU to bring it in and would impact directly on the financial institutions there of.

  • Comment number 85.

    I popped into Lloyds bank this morning and had a look at their new mortgage leaflet, it basically lays out a self assesment table where you work ouy for yourself if you can afford to pay a mortgage then tells you that as long as you can get together a 10 per cent deposit you can have your mortgage no questions asked. What this means is that the 10 per cent deposit is just a fig leaf to cover up the fact that the banks are going to go straight back to lending high multiple salary mortgages again, fueling a new housing boom this time underwriten with our money.

    The reason this is such a short sighted, damaging thing to do is, as the rest of the world lays the economic foundations for recovery and growth that will hopefully last them for decades, our government on our behalf seems to want instead to underwrite a high debt economy based on all of us having to get mortgaged up to the eyeballs just to have a roof over our heads. Everyone I know who has bought a new home in the last 6 years has done so on a mortgage of between 6 and 9 times their anual salary, they can pay their mortgage but have little or no spare money left to spend out in the high street, so are removed from the economy as consumers for the next 25 years. That may suit the banks who will continue to see the value of their assets rise in the form of ever increasing property values, but it will slowly strangle the rest of the economy as each passing year the disposible income of more and more of us is hoovered up by the financial services industry.

    At one end of the economy you have all these people in debt and not spending and at the other end you have 4.5 million people who can not afford to live anywhere who also are also unable to be consumers in the sense that a vibrant economy needs, as the years go passed these two extremes will grow bigger until the economy slows to a standstill. The thing is, this is not a free fair market anymore, we as taxpayers are all underwriting this now with billions of our own money. If you are on a low income how would you feel if you realised that you were paying to underwrite house prices, the equity in the homes of those already lucky enough to have a roof over their heads, and you were paying to price housing forever out of your reach? When that penny finally drops it will be worse than the 10p tax row.

    By trying to manipulate house prices with taxpayers money the government is going to cripple our economy in the longer term, its like a marathon runner getting a blister and treating it by cutting off his foot!

  • Comment number 86.

    The new pan-European institution idea echoes the proposals fom the De Larosiere group. This is likely to become a boiling hot political potato. It's almost guaranteed that the new central regulator will be based in the Eurozone - and might be closely related to the ECB in Frankfurt. In this scenario the FSA implements the rules - but doesn't create them. How will that play in The Daily Mail?

  • Comment number 87.

    Who says there isn't a God? And with a sense of humour too?

    Well, me for one, but what delicious irony at Kempton Races yesterday when the topically-named 1/10 ON favourite "Conflict of Interest" is beaten by an outsider called "Nothing's Easy".

    With interest rates at zilch and even the dead certs as above getting turned over, where or where can I put my ill-gotten gains?

  • Comment number 88.

    Post 66 Sasha. I had forgotten that quote from Galbraith. It's been a long time since my Economics degree to be fair.

    I would strongly advise those interested in the current crisis to not only read that book but also his seminal book on the 1929 crash.

  • Comment number 89.

    I also want to suggest that we really are in "uncharted seas" in this recession.

    Due to the global nature of it and due to improved communications, better education, more awareness and other factors, I would not recommend assuming that this will be a straight re-run of the 1930's or any other previous recession.

    I'm not confident that we will see "recovery" (at least, not as we have known it in the past) and that the economic cycles won't be knocked completely off course this time around.

    More and more people are seeing the underlying fallacies of the financial industries. To put it crudely, put £30 with the financial industry and it won't get you much, but invest £30 in a bag of seed potatoes and put in a bit of spadework and it could result not just in something you might be able to sell, but in something you can eat yourself.

    Financiers really should not bet that people "need" the finance industry. Nor should Lord Turner.

    Currently, in the short to medium term, there is generally some degree of convenience in having a bank account, debit/credit card and certain other services ... but that might all change.

  • Comment number 90.

    Yes I know and agree with what loads of You have said. But, truth is, having just cleared a "mortgage" of £250000 through the sale of my house now I "need" to borrow £100000 and noone seems to have it. OK, I can go on renting for now but it's nowhere near as easy and ridiculously it costs a lot more. Down the street from me now is a house I could buy and restore for aforesaid £100000 to give me a better house than I'm in now (The other has its loft converted already) That as a 100% mortgage would be £400-£500 per month. My rent which is low for the area is £600.
    I don't think that we're through the re-adjustment yet. So, any suggestions out there? How do I get over a craving for a mortgage? Or how can I get my £100000!

  • Comment number 91.

    Turner is wrong- if we do not seperate trading from banking we will still not be able to let a trading bank fail and if the market is to work this must be allowed to happen. We thought global banks were needed to support global businesss and they could deal with us as well. They cannot- it has been proved that superbanks are more dangerous than any terrrorist threat. Regulation only goes so far- structures that opearte within defined limits are a much better hedge against risk. It might hinder growth but it might stop collapse

  • Comment number 92.

    #6: "Unfortunately, the next disaster will be the one we haven't thought of, or for most people - haven't thought that we hadn't thought of....... such as........"

    I know what the next one will be... it'll be pretty much the same as this one, just like the previous ones were pretty much the same...

    These ideas are fine - except they're shutting the stable door after all the horses have bolted and then bet all their oats on the derivatives market - but they won't last.

    During the next bubble - or the one after that - the banks will lobby the chancellor - who will be some muppet with no professional banking/market experience - that the banks don't need so much regulation.

    The rules will get relaxed and it'll be the same old, same old, until it all goes belly up and tighter rules will be applied.

    Finally, how does all this tally with the government's desire to see banks lend recklessly ASAP?

  • Comment number 93.

    Regarding risk, I have a pension invested with Arch Cru. The Arch Cru funds have been suspended. They were sold to me by my IFA and sold to my IFA as a 'managed and cautious' fund for my pension fund as categorised by the Investment Management Association (IMA). We are now told that the fund was too risky. How can this happen? I don't know what to do. This really feels like another very serious flaw in the UK's financial regulatory system. How can investment products be sold using what I can only describe as lies. IS ARCH CRU THE NEXT NORTHERN ROCK? Have we got through one layer of financial mis management, decided how to solve it (by being safer, more cautious, more capitalised) only to have unearthed another.

    Will you do a search on Arch Cru suspension, read the newswires and let me kmow if you feel that this is a one off. I don't think it is.

    Grahame Easthope

  • Comment number 94.

    Further to Jonnyzero yesterday and the RBS class action suit, I see Madoff's accountant has been charged for false auditing.

    That might concentrate the minds of a few accounting partners at our big four.

  • Comment number 95.

    #74 sashaclarkson

    "When they came thither, then were they taken one by one, and deprived each of the right hand and the testicles beneath."

    -Makes one cross ones legs does it not?

    Did they then become left handed non-bankers?

    It hurts, but only when you catch your thumbs between the two bricks.

  • Comment number 96.

    In Basil Fawlty's memorable phrase - "Special subject, the bleedin' obvious!" Which planet are these people from? Have they not read a financial paper in the recent past? We're where we are because of greed, lying, cheating and fraud, and I choose my words carefully. When will we see a building society taking any of the risk in a property? They have the mortgagee over a barrel, just the way they like it. Valuations of anything are an informed guesstimate at best, valid for about 20 mins tops. Bartering, anyone? Oh, and when are banks going to be made to credit money with the same lightning fast reactions as they do with debit? And when are they going to offer anything approaching a service eg opening/business hours 12 hours a day? ROFL, I believe the young people call it - "Rolling On the Floor, Laughing" for those of a more sane age

  • Comment number 97.

    It must be great to be as wise as Mr Peston ... three "silly ideas" indeed. Oh, hang on. Mr Peston didn't point out that these were silly at the time. Mr Peston is being clever with hindsight. Like any fool can be. What I find very very lacking is much (?any) mention of the missing role of the fourth estate. Journalists - business, financial, whatever - should be keeping a critical eye on the establishment - be that government, financial or whatever. And where were they all during these boom years? Silent, with their noses in the same trough as the bankers.

    I can't take anything Mr Peston says or writes at all seriously. If the BBC is looking for staff cuts, I know where I'd start ...

  • Comment number 98.

    Sorry RP but a smaller city is not a good thing, there should however be a move of emphasis from those who created not so clever toxic assets to the hardworking london workforce and infustructure we have in place.

    There should also be much greater emphasis on what borrowing is used for. Investment in R & D and Infustructure leads to improved efficiency that drives true growth, rather than judgging growth on purely paper values

  • Comment number 99.

    Of course...we all know how well TB was 'rewarded' for 'that letter' sent to the FSA chief in 2005. The very letter that has not been published despite the FOI Act.

  • Comment number 100.

    freedogcity wrote:
    .... It's almost guaranteed that the new central regulator will be based in the Eurozone - and might be closely related to the ECB in Frankfurt. In this scenario the FSA implements the rules - but doesn't create them..........

    it is better than creating rules and not implementing them.


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