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Financial Services Authority warns it won't wait for global deal on liquidity regulation

Financial Services Authority warns it won't wait for global deal on liquidity regulation

Britain's Financial Services Authority warned on Tuesday it would not wait for the implementation of international rules on bank's capital needs, saying Britain would move ahead with its own regulations if a global deal is not struck soon.
FSA chairman Callum McCarthy said the issue of liquidity, which was behind the current global credit crunch, was too important for regulators to delay.
"The present crisis started with liquidity pressures," McCarthy told the first annual meeting of the British Bankers' Association, which represents 230 banks from around 60 countries that operate in Britain.
McCarthy said that banks need to have a clear assessment of the liquidity risks they are running and regulators could not wait for guidelines that are being developed under the Basel II protocol that has been developed to govern the capital adequacy of financial institutions worldwide.
"We simply can't be in a position of waiting for Basel to come in," said McCarthy. "We will press ahead on a national basis because to do anything else would be inappropriate."
The regulatory panel based at the Bank for International Settlements announced new measures in April to strengthen the world's banking system against shocks like the U.S. subprime mortgage crisis.
The panel said the steps will lead to better protection against risky loans with steps such as requiring more appropriate capital reserves. They come on top of provisions known as Basel II issued by the committee that are being implemented by banking systems around the world to specify how much capital banks need to hold in reserve for different kinds of risks.
The committee said it will introduce stronger risk management measures, better valuation of assets and disclosure, more liquidity and capital to cushion against off-balance sheet losses.
And it said it seeks to overhaul Basel II regulation to include certain complex structured credit products "which have produced the majority of losses during the recent market turbulence."
McCarthy's warning that Britain would move ahead on its own unless there is a "step change" in the near term following criticism of the FSA for its handling of the credit squeeze, particularly the subsequent collapse of mortgage lender Northern Rock PLC.
McCarthy said that existing regulatory practices in Britain remain "broadly sound," but said that these practices needed to be developed and implemented differently.
"We can't delay," he said. "Firms, in our view, need to have a clear assessment of the liquidity risks they are running."
The British government has already unveiled plans to give authorities the power to swiftly seize control of a failing bank as part of an overhaul of banking laws to prevent a repeat of the run on Northern Rock.
The Treasury Office also proposes to give the Bank of England the right to grant emergency loans to struggling institutions in secret and to give the Financial Services Authority the right to demand more information from banks on their financial health.
Under the proposed laws, which would put Britain closer in step with U.S. banking regulations, the FSA would be given the power to decide when a "special resolution regime" to achieve "a more orderly resolution of a failing bank" should be put into action.
"Banks should have recourse to emergency liquidity only in exceptional circumstances beyond their control," McCarthy said Tuesday, adding that they should recognise that they run the risk of being brought into state control.


Updated : 2021-07-24 01:17 GMT+08:00