News from Cass Business School

Angela Knight speaks up for banking industry at Cass event

UK banks speed ahead on safety reforms

Friday, 26 November, 2010

UK banks have surged ahead in complying with Basel III rules that require them to hold greater capital reserves as a safety buffer against economic blows, according to Angela Knight, chief executive of the British Bankers Association (BBA).

Speaking at Cass Business School this week, Ms Knight, said the industry had exceeded targets due to be phased in from 2013 which call on banks to increase their minimum Tier I capital from two to seven per cent.

UK banks already are holding a higher percentage of capital at or around 11 per cent.  We have implemented three years early, she said in her speech on banking reform post the financial crisis.

Ms Knight also used the talk to tackle criticism over the implementation of Basel III in the UK.  She said:  I find it quite difficult to understand why some of the commentary seems to think that Basel III is somehow either not enough, taking too long to implement or both.  Basel II is very substantial and the timetable is not long either.

Addressing the question of whether banks are too big too fail, she said the industry agreed no institution should be incapable of being subject to an orderly wind down process.

She said:  The banking industry cannot be different to other companies and there are a series of interrelated measures that can achieve a regime which in future would enable a failing institution to be resolved in one way or another and as a real alternative to the use of any public funds to keep it afloat.

She said major banks are now creating recovery and resolution plans, to make that possible in the future: What a recovery plan means is that a bank, when hit by some big shock or problem, is able to recover because it has a plan in place - for example, to raise more capital, to sell off part of its business or simply exit an area of operation - and that plan must be executable.
She added:  And if recovery is not possible, then that same plan is used for resolution so the resolution authorities is readily able to sell off what can be sold off, to close what can be closed, should exit what can be exited and only if there is no alternative for what is left then that would be unwound in an orderly manner and with minimum impact on the economy.

The perceived democratic deficit at the Bank of England, she said, must be addressed before it attains power over macroprudential regulation through the proposed Financial Policy Committee.

These sorts of regulations have economic and socioeconomic consequences and I consider they are too serious to be just down to a regulatory rule change when it comes to the actions of a macroprudential regulator.

Permanent link to this story:
Share this article