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Newsroom & speeches
28 July 2009
1. In responding to the crisis, the Government’s first priority has been to act quickly to restore stability to financial markets, so that depositors are protected and banks can continue to lend.
2. But, looking to the medium term, it’s clear we cannot simply return to “business as usual”. There need to be major reforms to the way that banks are managed and how they are regulated, throughout the world.
3. Here in the UK we’ve already taken steps to reform the corporate governance of banking institutions; change the capital firms will need (in terms of both quantity and quality); reduce their leverage; call for more intensive supervision of firms; and give the authorities new powers to deal with failing banks.
4. But there remains a huge amount more to be done.
5. The starting point must be governance. It is clear that there must be major changes to the way that bank boards function, which is why the government welcomes many of the recommendations in Sir David Walker’s interim report.
6. Specific proposals in the report included:
7. The steps we have already taken represent significant reforms to our financial system and will build a more resilient global financial system.
8. But, there is a need for further, more fundamental, changes to regulation in the UK and internationally, to anticipate problems arising that may pose a threat to financial stability, and to deal with them if they do.
9. So the Government is proposing further reforms to banking regulation that will lead to:
10. Central to the Government’s proposals is the establishment of a new, empowered, and transparent facility based on the Council for Financial Stability.
11. We will bring legislation forward where necessary and will consider what further tools are needed to help the authorities address the potential build up of systemic risks.
12. And in everything we do we will work closely with the EU and our international partners. We can, and will, force the pace of change where necessary.
13. In April, at the London Summit, the G20 agreed principles for dealing globally with impaired assets; repairing the financial system to restore lending; strengthening financial regulation to rebuild trust; and funding and reforming international financial institutions.
14. In particular, the G20 agreed to establish a new Financial Stability Board with a strengthened mandate, as a successor to the Financial Stability Forum, to extend regulation and oversight to all systemically important financial institutions, instruments and markets; and to strengthen international standards of prudential regulation.
15. I gave a speech on 7 July in which I spoke about the European Commission’s proposal for a directive on the Alternative Investment Fund Managers, setting out our position on the directive. I will not repeat all those points here.
16. But I will reconfirm that our detailed discussions with affected firms have highlighted key issues for improvement of the Commission's draft.
17. These include:
18. We are fully engaged in the Brussels process and determined to achieve those improvements.
19. This follows the work we have done to secure practical responses to the report produced by the de Larosiere group and parallels our continuing active engagement on other areas including Solvency II.
20. There can be no doubt that the road ahead for financial services – here in the UK and around the world – will be difficult
21. We must not underestimate the challenges of rebuilding shattered confidence and restoring tarnished reputations.
22. As events have shown, the special place that banks have in the economy mean that when banks or banking are in difficulty, or even perceived to be in difficulty, society has to step in.
23. But with that implicit or explicit state support come moral duties, and obligations to behave in a manner consistent with the good of society.
24. Since the start of the crisis the Government has taken significant action in supporting the banking system. Government - and the taxpayer- expect a lot in return.
25. This, of course, includes extension of credit on profitable terms to bankable prospects and a constructive approach to good borrowers experiencing temporary difficulties.
26. In return for the privilege and protection afforded to them, banks must now show that they intend to renounce the poor risk practices of the past and re-establish a reputation for the utmost responsibility and probity.
27. Thank you.
