Banking at the crossroads

Written by Ashwin Rattan Tuesday, 24 July 2012 10:04
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Speech by Lord Turner, FSA Chairman at Bloomberg


Two weeks ago the Economist front page headline was  ‘Banksters’.  When a respected magazine, read throughout the world, suggests that banking is riddled with malpractice, its ‘credibility shot’, trust evaporated, we have a major problem.


A problem, because the banking system – and the wider financial system – plays a crucial role in a market economy. It connects savers and borrowers, investors and users of funds, it allocates capital, it provides payment services, it insures against risk.  It performs complex and vital functions, functions whose effectiveness depends crucially on the integrity of those who operate within the system, integrity which in turn earns trust.


And lack of trust in financial services is a problem for Britain in particular, because the City is a vital contributor to the UK economy.  But the City’s overall reputation can be undermined by excesses and failures in particular areas of activity – excesses and failures to which competitors abroad are only too happy to draw attention.


So we must consider where we go from here.  In this speech I will do three things:

First, identify three key drivers of declining trust in the banking system

Second, consider what the essential problem is – why banking is different from other sectors of the economy.Third, suggest implications for prudential policy, for industry structure, for conduct supervision and, most crucially, for the management and boards of banks.


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