An overview on the inconsistencies of approach in regulating the capital position of banks: Will the United Kingdom step out of line with Europe?

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Clayton, N. A. (2013)

After the collapse of a number of banking institutions and bailouts of banks by governments, regulators have taken a different attitude and now appear keen to take regulation seriously when it comes to ensuring that banks have adequate capital and sufficient liquidity. Not only that, but in the United Kingdom, the Independent Commission on Banking Reform has made proposals with regard to the capital position of banks. This article, which is an overview, will look at matters from a UK perspective and at the proposals for reform. This article, after its introduction and summary, will look at a number of areas: first, the reforms made by Basel III; second, the regulation of Systemically Important Financial Institutions (Sifis) and the proposals for dealing with these; third, some matters in relation to lending that relate to capital and liquidity generally; fourth, increased stress testing of banks; fifth, derivatives and risk taking and the new proposed structure of regulation in the United Kingdom; sixth, the war of spin between regulators and banks; seventh, Shadow Banking; and eighth, The Independent Commission on Banking Reform and its proposals for reform. It will also be a theme that the various proposals lack consistency and that this could lead to regulatory arbitrage. It is already clear that there are inconsistencies between the various regulatory organisations, with proposals in the United Kingdom indicating that banks will be required to keep much higher levels of capital than those proposed by Basel and the European Community. The views of those who have pointed out inconsistencies between the United Kingdom and Basel/Europe have been highlighted.
  • References (226)
    226 references, page 1 of 23

    1 See generally: Arora, A. (2010) The global financial crisis: A new global regulatory order?. JBL 8: 670-699, In contrast to that article, this article will look at regulation from a UK perspective and how it has been affected by Basel III.

    2 Jenkins, P. (2011) Quality of stress testing disclosures a mixed bag. Financial Times, 18 July.

    3 These concepts are discussed subsequently in part 1: Basel III.

    4 See the large number of informative pieces in the Financial Times about these.

    5 See the subsequent discussion of these in Section 'Responsible Lending'.

    6 Jenkins, P. (2011) Quality of stress testing disclosures a mixed bag. Financial Times, 18 July 2011. See also page 1 of the Financial Times, 19 July 2011; in a section with a heading 'UK banks hit hardest' it is alleged that one bank had used a loophole to avoid disclosure about its exposure in Ireland. implemented through the capital adequacy directive and through rules and regulations of the UK regulatory authorities. Christos Hadjiemmanuil, Banking Regulation and The Bank of England LLP 1996, talks about the implementation of Basel I and in footnote 88 at page 203 he writes: 'Remarkably, nobody questioned the validity of the Bank's quasi-formal implementation of the formally nonexistent international document'. See in addition: D.E. Ho, 'Compliance and international soft law: Why do countries implement the Basle Accord?' 1 August 2002 JIEL 5(3): 647-688.

    14 Alexander, K. (2004) Editorial: Why banks hold capital in excess of regulatory requirements: The role of market discipline. Journal of International Banking Regulation 6(1): 6-9.

    15 Professor Norton, J.J. confirms the point that the Basle Committee's proposals in the European Union 'will be enacted through formal legal means. In: J.J. Norton (ed.) Bank Regulation and Supervision In The 1990's. Lloyd's of London Press Ltd, Appendix (to Chapter 5) Background note on the Basle Committee Joseph J Norton.

    16 Mervyn King in response to question 8 of Stewart Hosie: The Uncorrected Transcript of Oral Evidence to be published as HC 430 -i: House of Commons Minutes of Evidence Taken Before Treasury Committee Financial Y Regulation Wednesday 28 July 2010. This is an oral transcript and witnesses and Members of Parliament have seen below, the IndPependent Banking Commission is not had an opportunity to correct the record. As will be seeking to introduce higher levels of capital reserves than O those proposed by Basel III. Simon Gleeson makes the point that for European Union Law and the Basel rules to be industry. CGleeson, S. (1999) A journey from Basle to different would be highly damaging for the banking Brussels. Journal of International Banking Law 14(9): 275-276, See also S. W. K-S Reforming regulatory capital: The REuropean response to the financial crisis (2009) 10 JIFBL 603. See generally: Norton, J.J. (1995) Devising International Bank Supervisory Standards. London/Dordrecht/Boston: Graham & Trotman/Martinus Nijhoff, pp. 176-177.

    18 As is pointed out by Walker, G.A. (2010) The global credit crisis and regulatory reform. In: I. MacNeil and J. O'Brien (eds.), Chapter 11 The Future of Financial Regulation. Oxford and Portland, Oregon: Hart Publishing.

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