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Chancellor unveils crisis-proof banking regulation

The Government is today setting out its vision of a credit-crisis proof banking system.

Chancellor of the Exchequer, Alistair Darling, is presenting the House of Commons with a White Paper that tackles excessive risk taking by toughening up the regulatory system and putting caps on bank lending.

According to reports, capital requirements will be increased in line with the Turner Review and banks will be directed to hold more in the way of liquid assets.

In addition, remuneration policies will need to be tied to banks’ long-term profits and the Chancellor will reveal a strategy that addresses the dangers of banks that are “too big to fail”.

While the current tripartite system of regulation (involving the Bank of England, the Financial Services Authority and the Treasury) will be retained, the Bank will have its powers increased.

The changes should enable a speedy response should financial markets begin to overheat.

Parliament is expected to start working on draft legislation after the summer recess and the new rules should be in place in the early part of 2010.

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