THE CHAIRMAN of the Financial Services Authority (FSA) will warn bankers today that tougher regulations constraining credit supply are needed, even if they dent growth.
The new Financial Policy Committee must be “willing to take away the punchbowl of excessive credit when everyone else is enjoying the party”, according to Lord Turner, who is speaking today at the London School of Economics.
He will warn that deleveraging the financial system without denting growth is almost impossible, but that this was simply “a strong argument for designing a future system less likely to create excessive leverage in the first place”.
He will also recommend much higher capital and liquidity requirements for banks, as well as policy that “leans against the wind of excessive credit creation”.
Turner will run through four scenarios for the future of banking, warning that fixing banks that are too big to fail is “necessary but not sufficient”, and that splitting investment and deposit-taking banks is not enough to ensure stability.
The proposals follow on from Turner’s speech at the BBA conference yesterday, in which he delivered a eulogy on the FSA’s achievements and said a more interventionist strategy is needed to curtail risky lending.