Britain’s proposed overhaul of liquidity requirements for banks risks undermining co-operation between regulators and could damage London’s position as a global financial centre, industry associations and lawyers have warned.
Responses to the Financial Services Authority’s proposals on liquidity rules suggest that the British regulator is likely to face intense opposition to its decision to push ahead with a framework while other national regulators are drawing up their responses.
The FSA’s proposals, outlined in a consultation paper last December, are designed to improve banks’ management of liquidity and prevent foreign lenders from operating in the UK without the same level of oversight.
They aim to fix one of the most glaring shortcomings in global banking regulation to have been exposed by the crisis. Inadequate regulation of liquidity triggered the rapid collapse of Northern Rock as well as the failure of Iceland’s banks, several of which had substantial operations in the UK.