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The Newsletter assesses the de Larosière and Turner Reports in more detail in the context of the G20 Summit in London on 2 April, and describes new regulatory and market practice developments in the primary markets, secondary markets, asset management and the financial infrastructure.
It is clear from both the de Larosière and Turner Reports that there will be a new approach by the authorities in Europe to financial regulation, the supervision of financial institutions and the stability of the financial system as a whole in future, Paul Richards writes introducing the newsletter.
Proposals of the new system may include:
Ø Prudential supervision will be more “intrusive” in future, rather than relying on a “light touch” regime.
Ø There will be much more emphasis on the effective regulation of liquidity.
Ø The regulation of capital adequacy will change.
Ø A counter-cyclical capital regime is likely to be introduced.
Ø Authorities are to extend prudential regulation of capital and liquidity to “bank-like institutions”.
Ø Host supervisors are likely to rely less on home supervisors.
Ø Banks will be encouraged to tie pay to long term performance.
Ø There will be pressure for more transparency.
Ø Financial markets will become more resilient by increasing the role of central counterparty clearing houses, and reducing reliance on credit rating agencies.
These proposals leave a number of important issues such as:
Ø the definition of ‘systemically significant’,
Ø how to deal with financial institutions that are too large to be rescued by the countries in which they are based,
Ø how to devise a counter-cyclical policy to regulate the growth of the financial system,
Ø how to marry the “top down” assessment of systemic risks with the “bottom up” supervision of financial institutions, and
Ø the new set of supervisory authorities at European level.