Journal of Banking Regulation

, Volume 14, Issue 2, pp 107–133 | Cite as

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

  • Nigel Clayton
Original Article

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.

Keywords

Basel III capital Independent Commission on Banking Reform European approach 

Notes

Acknowledgements

In this article, the author has used a wide range of material from Official Parliament Committees, Newspapers, in particular the Financial Times and also, the Bank of International Settlements. The author acknowledges the copyright of others, in particular, the speeches of a number of leading figures in the field of regulation. This article will not be looking at the ring-fencing proposals proposed by the Independent Commission on Banking but will confine itself to the proposals relating specifically to the capital and liquidity of banks. The idea of cat and mouse has been used in analysis in a different context by Professor Nicholas Ryder: The Financial Services Authority and money laundering: a game of cat and mouse (2008) Cambridge Law Journal CLJ 2008, 67(3) 635–653, and also, in the context of shadow banking by Tony Jackson: Regulators and banks caught in a game of cat and mouse: Financial Times 31 January 2011.

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Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Ltd 2013

Authors and Affiliations

  • Nigel Clayton
    • 1
  1. 1.Department of LawCity UniversityLondonUK

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