The return to “aggressive hiring” and risky trading by investment banks is “concerning,” the chairman of Britain’s financial regulator told British politicians.
There is evidence of a return to “business as usual” by banks in the UK, both in terms of the pay being offered to new hires and in their trading activities, Financial Services Authority chairman Adair Turner told a parliamentary panel in London today.
The FSA has plans to dictate how banks pay their staff and intends to make them set aside “several times” more capital against their trading books, he said.
“I do have some concerns that we may see a more rapid return to risky trading activities than we had anticipated,” Lord Turner told the Treasury Select Committee.
Lawmakers on the panel asked him specifically about the recently agreed pay for Stephen Hester, chief executive officer of the Royal Bank of Scotland Group, which is majority owned by the government.
The committee is examining how regulation should be redrawn in the wake of the worst financial crisis since the Great Depression.
Lord Turner, who published his own proposals to “revolutionize” regulation in March, has called for banks to hold more capital of a higher quality and for a committee to monitor risks to the entire financial system.
An oversight committee should be chaired by the Governor of the Bank of England and have a majority of members from the central bank, Turner said today.
FSA employees should make up the other members and equally contribute in analysis and reports, he said.
It would work by consensus rather than having votes, unlike the Bank’s Monetary Policy Committee, he said.
The oversight proposal mirrors a similar plan in the European Union to have a board monitoring risk that would sit within the European Central Bank.
A debate among lawmakers as to who should be in charge of oversight is ongoing.
Lord Turner said that if the central bank alone was making decisions on whether to use tools such as “dynamic provisioning” - when banks have to put aside capital during the good times to draw down upon in the bad - then it should also make sure that lenders act on the Bank of England’s policy decisions.
Bloomberg