The changes in the regulation of UK governmant

The most original of these new institutions is the Financial Policy Committee which has been created to perform macro-prudential regulation. Andrew Crockett (Speech reference) defines the objective of macro-prudential regulation as “… limiting the likelihood of the failure, and corresponding costs, of significant portions of the financial system”, essentially examining the systemic risks. The implication being that regulation will focus on reducing the risk of correlated failures and focus on institutional factors such as size and importance to the economy. Andrew Haldane (Speech reference) describes macro-prudential regulation as the missing policy link during the pre-crisis period. The FPC’s current task, simply put, is to keep the system safe in the face of heightened risks of a relapse, while at the same time keeping the banks’ credit arteries open to support the economy. The FPC will do this by monitoring systemic risks attributable to structural features or distribution of risk within financial markets while also monitoring unsustainable levels of leverage, debt or credit-growth. The hope being that should a situation arise where banks’ balance sheets become as bloated as before the crisis that the FPC will be able to spot it and take action to cool the market. Where before individual institutions were given clean bills of health the FPC will measure the health of the whole industry to see if it is as great as the sum of its parts.

Another major change occurring within the Bank of England can be seen in its service as a lender of last resort. The Bank has begun accepting a much wider range of assets to be used as collateral when accessing Bank liquidity. Bagehot (1873), a critic of the Bank, was a key figure in the introduction of the lender of last resort facility. However, for Bagehot specific criteria had to be met. These included the bank in question being solvent but temporary illiquid and supplying good collateral before being allowed to borrow at a penalised rate. This change in procedure by the Bank is, in the mind of the authors, appropriate during the panic that was the initial credit crunch but wholly unworthy of becoming a permanent feature.

To sum up,although we have adopt many effective measures to alleviate the effects which come from the financial crisis. But there still so many thing we have to face. For example, we found dramatic breakdowns of corporate governance, profound lapses in regulatory oversight, and near fatal flaws in our financial system. We also found that a series of choices and actions led us toward a catastrophe for which we were ill prepared. These are serious matters that must be addressed and resolved to restore faith in our financial markets, to avoid the next crisis, and to rebuild a system of capital that provides the foundation for a new era of broadly shared prosperity.

If you want to know about the current financial crisis, you may like to read these:

HM Treasury (2011) A new approach to financial regulation: building a stronger system. Presented to Parliament by the Financial Secretary to the Treasury by the Command of Her Majesty. February 2011.

Chambers-Jones, C. (2011) The Vickers report. Business Law Review, 32 (11). pp. 280-292.

Hickson C. R, Turner J. D (2003) The Trading of Unlimited Liability Bank Shares in Nineteenth-Century Ireland: The Bagehot Hypothesis. The Journal of Economic History. Vol 63, No. 4, pp 931-958

Goodhart, C.A.E. Law and Financial Markets Review, Volume 6, Number 1, January 2012 , pp. 32-38(7)

Acheson G. G, Turner J. D (2006) The Impact of Limited Liability on ownership and control. Irish Banking, 1877-1914. Economic History Review, LIX, 2, pp. 320–346