LONDON | (Reuters) - Britain's new risk watchdog is "on the horns of a dilemma" over whether to allow banks to tap their capital buffers to help boost the flagging economy, a top regulator said on Thursday. The new Financial Policy Committee (FPC) at the Bank of England is meant to plug a gap highlighted by the financial crisis by taking a "helicopter" view of markets to spot bubbles earlier and take evasive action. It may get tools like mortgage caps to apply when too much credit is flowing into housing, but it could be years before credit gets frothy again as the UK, European and U.S. economies fight to avoid recession. "Political independence to take unpopular action, to 'take away the punchbowl', is not the challenge today -- the party is not so much out of hand as cancelled," Financial Services Authority Chairman Adair Turner told an audience from the financial sector. Turner, a member of the FPC, said it had been debating whether there is a role in stimulating credit in a downswing. The answer was unclear and meanwhile there could be a new credit crunch from the interplay within the euro zone of sovereign debt and bank solvency concerns, he said. The FPC is "on the horns of a dilemma" because if markets are fragile, banks should build up buffers, while a depressed economy could argue for using bank capital to boost growth. Turner is also worried that when stronger credit returns, the FPC may be unable to force banks to adequately increase their capital buffers to cover loans that turn sour. The European Union is in the process of approving a draft law that would turn a global bank capital accord into maximum requirements. Turner said national regulators should be free to require bank buffers above those laid out in the Basel III accord. "The idea that securing the single market requires the harmonisation of maximum as well as minimum standards is simply wrong and potentially harmful," Turner said. Brussels has said there is enough flexibility in the EU draft law to allow countries to demand higher capital buffers. The FSA is being scrapped next year and replaced by a Prudential Regulation Authority at the Bank of England and a standalone Financial Conduct Authority. Turner said the FCA needs strong powers to protect consumers to stop a wave of mis-selling of various financial products over the past 20 years that has triggered compensation payments totalling some 15 billion pounds. The FCA should have powers to demand changes in product terms or even ban the product in question as well as force firms to pull adverts, Turner added. (Editing by David Holmes)UK watchdog on "horns of dilemma" over bank capital
Friday, 21 October 2011
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