No ‘one shot silver bullet' exists to solve banking's problems, FSA chairman Adair Turner said today.
The "too big to fail" banks issue needs a multi-pronged attack to cut interconnectedness, narrow banking, and by standardise the way large cross-border groups are treated, Turner says.
But controversy remains over the issue of narrowing banking and what to do about the risks created by cross-border operations.
‘Narrow bank' proposals seek to divorce utility banking from casino banking.
Lord Turner argues there should be a distinction between commercial banks and proprietary trading, which could be achieved by strict capital requirements and the use of distinct resolution and recovery plans.
On large cross-border banks, Lord Turner said a crucial issue was balance between regulatory focus on whole group capital and liquidity, versus focus on the stability of standalone national subsidiaries.
He argued that the more standalone approach could be an answer to the "too-big-to-rescue" challenge.
If individual countries are responsible for resolving local operational problems, rather than responsibility resting solely with the home nation of a global group's headquarters, host countries would impose stronger local capital and liquidity standards, creating standalone national subsidiaries.
Lord Turner concluded: "It is important that these ideas are challenged and others put on the table. This is why the paper we produced on 22 October is a discussion paper not a conclusions paper, and why we hope, through this conference and subsequent initiatives, to stimulate a wide ranging debate on these complex issues."
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