Table of Contents

The Financial Crisis and the Regulation of Finance

The Financial Crisis and the Regulation of Finance

Edited by Christopher J. Green, Eric J. Pentecost and Tom Weyman-Jones

The 2007–08 financial crisis has posed substantial challenges for bankers, economists and regulators: was it preventable, and how can such crises be avoided in future? This book addresses these questions. The Financial Crisis and the Regulation of Finance includes a comprehensive overview of the crisis and reviews the theory and practise of regulation in the UK and worldwide. The contributors – all international experts on financial markets and regulation – provide perspectives and analysis on macro-prudential regulation, the regulation of financial firms, and the role of shareholders and disclosure.

Chapter 12: UK Financial Reform Post Crisis: Is More Regulation the Answer?

Shelagh Heffernan

Subjects: economics and finance, financial economics and regulation, money and banking

Extract

Shelagh Heffernan1 INTRODUCTION I am delighted to be invited to contribute to this volume in honour of David Llewellyn. His contribution in the field of banking, finance and money is legendary, especially his ability to combine theory with practice. My choice of topic is one Llewellyn has discussed in papers published over many years.2 In a key speech in January 2009, Lord Turner, chairman of the FSA, made it clear that the days of light regulation were over: The changes which we need to make to create a sounder system for the future will be profound. . . . The response needs to be multifaceted. . . . These include actions relating to remuneration and incentives, to rating agencies, to counterparty risk in derivatives. They also involve consideration of the appropriate balance between mark to market and accrual accounting principles in published accounts. And, very importantly, we need to address issues relating to the regulation of large cross-border financial institutions, the realistic scope for global supervisory coordination, appropriate structures for local operations (subsidiaries or branches) and the appropriate balance of responsibility between home and host supervisors.3 In a March 2009 discussion paper, he goes further, calling for an EU super-regulatory structure: It is essential that the European Union now considers the appropriate way forward. The FSA Discussion Paper therefore proposes for debate a number of options, expressing a current preference for the creation of a new European Union institutional structure, which would replace the Lamfalussy committees. This body would be an independent authority with regulatory powers,...

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