An overview on the inconsistencies of approach in regulating the capital position of banks: Will the United Kingdom step out of line with Europe?

Abstract

This is the accepted version of the paper.This version of the publication may differ from the final published version. ABSTRACT After the collapse of a number of banking institutions and bailouts of banks by governments, regulators have taken a different attitude and now appear keen to take regulation seriously when it comes to ensuring that banks have adequate capital and sufficient liquidity. Not only that, but in the United Kingdom, the Independent Commission on Banking Reform has made proposals with regard to the capital position of banks. This article, which is an overview, will look at matters from a UK perspective and at the proposals for reform. This article, after its introduction and summary, will look at a number of areas: first, the reforms made by Basel III; second, the regulation of Systemically Important Financial Institutions (Sifis) and the proposals for dealing with these; third, some matters in relation to lending that relate to capital and liquidity generally; fourth, increased stress testing of banks; fifth, derivatives and risk taking and the new proposed structure of regulation in the United Kingdom; sixth, the war of spin between regulators and banks; seventh, Shadow Banking; and eighth, The Independent Commission on Banking Reform and its proposals for reform. It will also be a theme that the various proposals lack consistency and that this could lead to regulatory arbitrage. It is already clear that there are inconsistencies between the various regulatory organisations, with proposals in the United Kingdom indicating that banks will be required to keep much higher levels of capital than those proposed by Basel and the European Community. The views of those who have pointed out inconsistencies between the United Kingdom and Basel/Europe have been highlighted. Permanent repository link

Insider perspectives on European banking challenges in the post-crisis regulation environment

“…Critics of Basel III point out that there is an implementation inconsistency among various national regulators. 20 They have argued that it was not Basel's II shortcomings per se but this inconsistency in the application of the regulatory approaches on the use of external credit ratings in Europe and the US as well and that in itself further incentivised regulatory arbitrage. The new framework has also been criticised as a less-effective, rigid, one-size-fits-all approach and that it creates the potential for further credit constriction and regulatory capital arbitrage.…”