Knight, addressing an international audience at the Mansion House in the City of London, said she had three things on her wish list if change was to be effective for everyone.
1. Capital requirements
The consequences of the increased amounts banks are already holding as a consequences of the Basel II standards and FSA decisions need to be considered to ensure UK banks are not at a disadvantage in comparison to banks in other countries.
2. Socio-economic consequences
A balance has to be struck between sensible insurance against the risk of bank collapse and the need to help individuals and businesses weather the recession. The more capital and liquidity banks hold, the less they can end.
3. Co-ordinated international action
Rules need to be international with other major financial centres interpreting and applying changes in a similar fashion and on a similar timescale.
Commenting she said: “The banking industry is facing a very significant programme of change. It stems from the financial crisis and the desire that problems should not occur again. The industry accepts we need to change our national requirements, the European framework and the international standards. Where there are gaps, these need to be filled. Where better supervision, better co-ordination and more coherent rules are required this must take place.
“Capital and liquidity are two topics high on the agenda of all authorities. The industry here will be required to hold more capital and soon will also have to retain more liquidity as well. These new requirements will inevitably result in a significant increase in costs for banks operating in the UK - so there are three points that are essential.
“First, as a consequence of FSA decisions, banks are already holding more capital than is required by the Basel II standards. Second, the more capital and liquidity banks have to hold, the less they are able to lend. We cannot use the same money twice. Thirdly, London is international so changes need to be taken on an international basis with, at the very least, countries with other major financial centres interpreting and applying changes in a similar fashion and on a similar timescale – one that recognises that the first priority has to be recovery from this recession.”
