Banking Supervision and Regulation

HL Paper 101-I, 2nd Report of Session 2008-09 - Volume I: Report

Author:: House of Lords - Select Committee on Economic Affairs
Publisher:: TSO (The Stationery Office)

Banking Supervision and Regulation (HL Paper 101-I)

2007 and 2008 saw the biggest financial crisis since the 1930s. Banks looking for better yields from plentiful, cheap money made much more use of complex financial instruments, without fully understanding the risks to which they were exposing themselves and the financial system. Defaults on subprime mortgages underlying some of the instruments shattered confidence and financial markets seized up.

The framework of regulation and supervision in Britain failed to avoid or mitigate the crisis. The tripartite authorities in the United Kingdom - Bank of England, Financial Services Authority (FSA) and HM Treasury - failed to maintain financial stability and were found wanting, in part because the roles of the three parties were not well enough defined and it was not clear who was in charge.

Too little attention was paid to macro-prudential supervision (oversight of the aggregate impact on financial stability of individual banks' actions). Only the Bank of England and the FSA were in a position to assess it. The FSA concentrated on its responsibility for conduct-of-business supervision (concerned mainly with consumer protection) and did not pay full attention to the solvency and sustainability of individual banks. It also had an inadequate understanding of the complexity and limitations of the risk assessment models used by the banks it was supervising.

The Banking Act 2009 showed the Government had learnt the lesson that special resolution provisions are needed for banks, since their failure can threaten the whole financial system. The Committee calls on the Government urgently to revisit the tripartite supervisory system in the United Kingdom and it should return responsibility for macro-prudential supervision to the Bank of England.

Other recommendations cover bank capital regulation, ratings agencies, and bank governance.

The accompanying 'Banking Supervision and Regulation - Volume II: Evidence (HL Paper 101-II)' (ISBN 9780108444340) is available to buy separately, please see below.

Extent	67 pages	ISBN	9780108444333
Size	A4	Price	£13.50
Binding	Paperback	Published	02 Jun 2009
Availability	Colour copy: 3 - 5 days	Delivery	Delivery options and charges