News from Cass Business School

Banking regulator Lord Turner returns to Cass

FSA chairman calls for more powers for regulators over bank lending

Friday, 19 March, 2010

Lord Turner has been an outspoken chairman of the Financial Services Authority and one not afraid to challenge major institutions, once famously describing some parts of the financial world as being "socially useless". He didn't disappoint last night in a lengthy speech at Cass Business School to an audience of academics, students and City grandees.
Amongst a number of policy initiatives presented, Lord Turner was especially keen to introduce rules to force borrowers to save for a deposit before they are granted a mortgage, highlighting that 75% of all bank loans are for the property sector. He argued that often these loans are taken out in the expectation that property prices will appreciate rather than having any notion of a "productive investment".
There has been a lot of criticism of the complex financial innovations that supposedly spread risk across the financial system but failed to do so but Lord Turner said that these instruments may still have a role to play. "Complex securitisation and credit derivatives may, if purged of their excesses, have potential to improve bank risk management but the pre-crisis argument they created major economic efficiency benefits was hugely overstated," he said.

Lord Turner concluded: "There are no easy answers here: but some combination of new macro prudential tools is likely to be required. We need ways of taking away the punchbowl before the party gets out of hand. And a crucial starting point in designing them is to recognise that different categories of credit perform different economic functions and that the impact of credit restrictions on economic value added and social welfare will vary according to which category of credit is restricted."
The lecture has been covered extensively in the media including the Financial Times Resources: Transcript - Slides

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Adair, Lord Turner, Chairman, FSA

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