The BBC has a run down of the FSA’s bank reform recommendations announced today, which are aimed at bringing us out of this horrible mess and prevent it happening in the future.
We mentioned a couple of days ago that there were suggestions that laws may be passed to cap mortgage lending at a certain multiple of the borrowers salary. The recommendations have failed to do this so far, but there are to be discussions on the regulation of the mortgage market, of which this would form part.
Here are some of the key suggestions:
- FSA to focus on the strategies of financial firms and wider risks to identify when firms could be heading for trouble
- Better monitoring of credit conditions in the UK as a whole to assess if a dangerous boom could be approaching. The FSA, the Bank of England and the International Monetary Fund should do this.
- Banks being required to build up reserves in healthier economic times to guard against future losses and being forced to hold more cash or liquid investments, to make them less vulnerable if other sources of finance dry up.
- The temptation to take excessive risks being removed by making it less profitable for banks to do so – for example, by forcing them to hold more capital.
- National and international efforts to ensure that remuneration policies – including bonuses – are designed to discourage excessive risk-taking.
- Credit rating agencies – which judge how stable businesses and investments are – to be regulated
- Reforms to the regulation of European banking – including the idea of a new pan-European body to set standards for other regulators to follow.
Much of what has been suggested would appear to be good old-fashioned common sense banking – indeed you may be wondering why the hell the FSA wasn’t doing some of this stuff before, such as ensuring that banks put enough money aside in the good times to see them through the bad.
You may wish to plough through the full document (PDF), or do what I’ve done and rely on the BBC’s roundup for the main points.
