Professional Documents
Culture Documents
249241
249241
E Philip Davis
NIESR and Brunel University
West London
e_philip_davis@msn.com
www.ephilipdavis.com
groups.yahoo.com/group/financial_stability
Overview
• What is a bank – how do they fail?
• The role and nature of financial regulation
• How did the financial crisis impact on the
UK?
• The safety net – issues for the UK
• Prudential regulation
• Cross border aspects
• Some comments on the Turner Review
What is a bank – why do they
fail?
• Traditional bank
Assets Liabilities
Liquid assets Capital
Retail deposits
Illiquid loans
• “Modern” bank
Assets Liabilities
Liquid assets Capital
Illiquid loans Retail deposits
Illiquid securities in SIV/conduit Asset backed commercial paper with bank back
up line of credit
The role and nature of financial
regulation
• Aims to protect against market failures
– Information asymmetry
– Externality
– Monopoly
• Two aspects of regulation
– The safety net – lender of last resort and deposit
insurance - ultimately recapitalisation/nationalisation
– “the current issue”
– Prudential supervision – capital adequacy and
supervisory monitoring – and macroprudential
analysis – “the future issues”
UK regulatory framework
• Tripartite system of Treasury, FSA, Bank of
England
– Financial Services Authority (FSA) is responsible for
financial and banking regulation;
– Bank of England contributes to the stability of the
system through monetary policy, its lender of last resort
operations and macroprudential surveillance;
– Treasury is responsible for the overall architecture of
the system and aspects affecting the public finances
Size of UK banking sector
Panel A. Resident banking–sector assets (multiples of GDP)
Foreign
Total
Bank ownership £ assets currency
assets
assets
UK 1.40 1.05 2.45
Other European Union 0.47 1.05 1.51
American 0.08 0.44 0.52
Japanese 0.01 0.11 0.12
Other developed 0.16 0.65 0.81
Other 0.01 0.05 0.06
Memo: building societies 0.26 0.02 0.27
FSIs for UK banks