Ex-FSA chief calls for massive increase in banks’ capital reserves

'It could take at least a generation to create a credible body'

The former chairman of the City watchdog last night called for banks to massively increase their capital reserves on the day plans for a new professional standards setting body were unveiled.

In a speech in Frankfurt, Lord Turner, who chaired the Financial Services Authority until its abolition in 2013, backed the argument that, in an ideal world, bank-capital ratios would be “as high as 20 per cent to 25 per cent” – more than twice current levels.

He warned that the economic danger posed by excessive credit growth is so great that it is “almost certain” banks should be forced to hold significantly more capital than at present.

Lord Turner noted the international Basel III rules can require banks to hold a counter-cyclical equity buffer of  2.5 per cent of their risk-weighted assets but said that this should be  “much larger”.

The argument for hugely increasing the amount of capital banks hold has found favour with a number of central bankers, notably  Sir Mervyn King, who made the case while in office as Governor of the Bank of England.

However, any such move would be sharply resisted by the industry, which has long argued that it would curtail banks’ ability to lend to businesses and fuel economic recovery.

Banks are hoping that the plans for a new standards body will improve a reputation that has arguably never been lower in the wake of the financial crisis and subsequent taxpayer-funded bailouts together with the escalating list of scandals thrown up in its wake.

Sir Richard Lambert, a former director general of the CBI, said there was a “strong case  for collective action” among banks to  improve standards.

And he took aim at “industry norms” that “have incentivised short-term revenue generation as opposed to the duty of care to customers”.

“So long as this is allowed to continue, banking will fail in its efforts to raise standards of conduct.”

The body he envisages would develop metrics against which banks could benchmark themselves and then report annually on progress. It would, he said, act as a “champion” of better professional standards  in banking.

He also said it could validate training programmes and ultimately become a professional body for bankers potentially along the lines of similar organisations in accountancy or law.

Sir Richard said: “The objective is a measurable and continuous improvement in the conduct and culture of banks and building societies doing business in the UK. The credibility of the new body will be built on the independence of its board, and on widespread industry participation.”

However, Andrew Tyrie, chairman of the Parliamentary Commission on Banking Standards, warned that it could take years for such a body to become effective and urged rapid action in order to address his commission’s recommended reforms.

“This is a welcome start to a very long-term project. As the Banking Commission concluded, it could take at least a generation to create a credible, effective body,” he said.

“In the meantime, this work cannot substitute for the work of the regulators. The most urgent task now is for banks and the regulators fully to implement the proposals of the Banking Commission, including certification and linking reward to the maturity of the risk.”

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Why the cost of parenting has become so expensive

Why the cost of parenting has become so expensive

Today's pre-school child costs £35,000, according to Aviva. And that's but the tip of an iceberg, says DJ Taylor
Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US