THE BANK OF ENGLAND will call today for an overhaul of the British financial system as a response to the events of the crisis and outline areas where policy changes are needed.
The Bank’s biannual Financial Stability Report published today says that conditions have improved but authorities need to strengthen financial system resilience so that a similar financial crisis cannot happen again.
Paul Tucker, the Bank’s deputy governor for financial stability, said: “No particular initiative will be sufficient by itself and greater resilience will need to be based on a variety of measures.”
The Bank outlines five key areas where it thinks change is needed, including stronger market discipline, greater self-insurance and the size of banks, which should not be so big that they cannot be supervised or wound down.
The Financial Services Authority (FSA) said earlier this week that large banks would not be forcibly broken up by the authorities.
However, the Bank agreed with the FSA that banks’ capital and liquidity requirements should consider the risk that the institutions bring into the system so that they are not as exposed again.
The Bank says in the report: “In the future, capital buffers should comprise only common equity to increase banks’ capacity to absorb losses while remaining operational. Regulators should require banks to build up buffers during periods of strong earnings to absorb losses in times of stress.”