08 April 2008

BBA warns against legislating in haste

The banking industry needs more time and more talks to ensure swingeing reforms to regulation do not have unintended consequences on the economy, the BBA said. "We are extremely concerned about the aggressive legislative timetable the Government is proposing to follow, particularly on the complex Special Resolution Regime and bank-specific insolvency arrangements", Angela Knight, BBA Chief Executive, said. "

The BBA submitted its response to the Government’s proposed banking reform package in the wake of the Northern Rock affair and the credit crunch. The proposals contained within the consultation document are far-reaching: it contains 29 legislative proposals, 11 proposed rule changes on which the FSA plans to consult and a further 23 highly significant matters labelled "operational changes".

The BBA argues that not enough weight has been placed on improving the FSA’s execution of its existing regulatory powers and on escalating its ability to intervene. The Association is also concerned about proposals being pursued by the IASB on both the scope and application of fair value accounting.

Further issues include:

- market stress can be significantly calmed through improvements in the operation of tripartite arrangements and a more efficient application of the Bank of England’s money market operations. This would require the Bank to embrace more radical change in its current review of the sterling money market;

- depositor protection arrangements can and should be improved but any such scheme cannot be pre-funded – making faster payments to customers should be the priority, but the paper’s proposals to achieve this are not practical;

- placing inflexible rules on the statute book on the special resolution regime and bank-specific insolvency arrangements would have the potential of damaging the competitiveness of the UK financial markets and the financial standing of banks that operate within them.

BBA comments

© Graham Bishop