Advertisement

Journal of Banking Regulation

, Volume 13, Issue 1, pp 24–35 | Cite as

Single or twin? The UK financial regulatory landscape after the financial crisis of 2007–2009

  • Alison Lui
Original Article

Abstract

The author aims to analyse the weaknesses of the Financial Services Authority (FSA) and the Bank of England during the financial crisis of 2007–2009. She aims to discover whether the coalition government's proposal to a twin-peaks model is a better alternative to the single regulator. The focus of this article is on micro-prudential regulatory failures in the United Kingdom. A comparison will be made with the twin-peaks regulatory model in Australia where there were no bank failures. The article is based on an analysis of recent papers and reports. Descriptive statistics are used to provide an insight into the financial ratios of the top banks in the United Kingdom and Australia. A comparative legal analysis between the United Kingdom and Australia is used to reflect the common law system used by both. The structure of the UK regulator was only a minor contributory factor to the financial crisis. The main regulatory and supervisory failures are due to organisational and management problems. There needs to be better information flow, coordination, cooperation, engagement with banks and stricter internal controls. The new UK regulator also needs to be prepared for the changes on the European dimension, following the de Larosiere report. This article will have policy implications for practitioners and policymakers on national, European and international dimensions. Changes in the European regulatory structure will see an emphasis on vertical regulatory cooperation. By first reviewing the weaknesses of the FSA in the light of Northern Rockand HBOS and then comparing the FSA with the Australian regulatory model, this article provides a new insight into financial regulation.

Keywords

financial regulation twin-peaks model Financial Services Authority single regulator financial crisis financial stability 

References

  1. World Economic Forum. (2009) The Financial Development Report 2009, World Economic Forum, USA. Cited 15 January 2011. [Internet], http://www3.weforum.org/docs/WEF_FinancialDevelopmentReport_2009.pdf.
  2. Barth, J., Caprio, G. and Levine, R. (2006) Rethinking Bank Regulation: Till Angels Govern. New York: Cambridge University Press.Google Scholar
  3. Adrian, T. and Shin, H.S. (2010) Liquidity and leverage. Journal of Financial Intermediation 19 (3): 418–437.CrossRefGoogle Scholar
  4. Brunnermeier, M. (2009) Deciphering the liquidity and credit crunch 2007–2008. Journal of Economic Perspectives 23 (1): 77–100.CrossRefGoogle Scholar
  5. Goldsmith-Pinkham, P. and Yorulmazer, T. (2009) Liquidity, bank runs and bailouts: Spillover effects during the Northern Rock Episode. Journal of Financial Services Research 37 (2): 83–98.Google Scholar
  6. Bruni, F. and Llewellyn, D.T. (2009) The Failure of Northern Rock: A Multi-dimensional Case Study. Vienna: SUERF – The European Money and Finance Forum.Google Scholar
  7. Milne, A. and Wood, G. (2008) Shattered on the Rock? British financial stability from 1866 to 2007. Journal of Banking Regulation 10 (2): 89–127.CrossRefGoogle Scholar
  8. Taylor, M. (2009) Blurring the boundaries in financial stability. In: F. Bruni and D.T. Llewellyn (eds.) The Failure of Northern Rock: A Multi-dimensional Case Study. Vienna: SUERF – The European Money and Finance Forum.Google Scholar
  9. House of Commons Treasury Committee. (2008) The run on the rock. In: Fifth Report of Session 2007–08, Vol. II, London: HMSO, HC56-II, Ev253.Google Scholar
  10. FSA Internal Audit Division. (2008) The supervision of Northern Rock: A lessons learned review report. London, March 2008. Cited 9 January 2011. [Internet], http://www.fsa.gov.uk/pubs/other/nr_report.pdf.
  11. HBOS Plc. (2007) Annual report and accounts 2006–2007. London. Cited 12 January 2011. [Internet], http://www.lloydsbankinggroup.com/media/pdfs/investors/2007/2007_HBOS_R&A.pdf.
  12. House of Commons Treasury Committee. (2007) Banking Crisis: Dealing with the Failure of UK banks, Seventh Report of 2008–2009. London: HMSO, HC 416.Google Scholar
  13. Moore, P. (2009) Memorandum of additional evidence to the House of Commons Treasury Committee relating to the banking crisis. Thirsk, Yorkshire, 25 February 2009.Google Scholar
  14. Moore, P. (2010) Interview with Alison Lui. Corporate governance and regulation of banks. Thirsk, Yorkshire. 10 July 2010.Google Scholar
  15. FSA. (2009) Statement re HBOS. FSA, 11 February 2009. Cited 9 January 2011, [Internet], http://www.fsa.gov.uk/pages/Library/Communication/Statements/2009/letter_chancellor.shtml.
  16. Sants, H. (2010) UK financial regulation: After the crisis. FSA, London, 12 March 2010. Cited 12 January 2011 [Internet], http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2010/0312_hs.shtml.
  17. Elliott, L. and Teather, D. (2010) George Osborne announces sweeping changes to city regulation. The Guardian 16 June 2010. Cited 10 January 2011 [Internet], http://www.guardian.co.uk/business/2010/jun/16/bankofenglandgovernor-financial-services-authority-fsa.
  18. HM Treasury. (2010) A New Approach to Financial Regulation: Judgment, Focus and Stability. London: HMSO, Cn 7874.Google Scholar
  19. Cooper, J. (2006) The integration of financial regulatory authorities – The Australian experience. Australian Securities & Investments Commission, Australia. In: Securities and Exchange Commission of Brazil 30th Anniversary Conference, Assessing the Present, Conceiving the Future. Rio de Janeiro, Brazil, 4–5 September 2006.Google Scholar
  20. G30. (2008) The Structure of Financial Supervision: Approaches and Challenges in a Global Marketplace. Washington DC: Group of Thirty.Google Scholar
  21. Clark, T. (2007) International Corporate Governance, A Comparative Approach. Oxford: Routledge.Google Scholar
  22. HIH Royal Commission. (2003) The Failure of HIH Insurance. Canberra: Australian Government, Cited 6 January 2011 [Internet], http://www.hihroyalcom.gov.au/finalreport/Front%20Matter,%20critical%20assessment%20and%20summary.HTML#_Toc37086537.
  23. De Larosiere, J. (2009) The high level group of financial supervision in the EU. Brussels, 25 February 2009. Cited 10 January 2011 [Internet], http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf.
  24. Turner, A. (2009) A Regulatory Response to the Global Banking Crisis. London: Financial Services Authority.Google Scholar
  25. Carmichael, J. (2004) Australia's approach to regulatory reform. In: J. Carmichael, A. Fleming and D. Llewellyn (eds.) Aligning Financial Supervisory Structures with Countries Needs. Washington DC: World Bank Institute.Google Scholar
  26. Office of National Statistics. (2010) UK government debt & deficit. London, 2010. Cited 11 January 2011 [Internet], http://www.statistics.gov.uk/cci/nugget.asp?id=277.Google Scholar

Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Ltd 2011

Authors and Affiliations

  • Alison Lui
    • 1
  1. 1.Liverpool John Moores UniversityLiverpoolUK

Personalised recommendations