Regulatory review – financial crisis, capital revision and market resilience Part I

George Walker reviews the past regulatory year. He initially considers the background and nature of the crisis that has unfolded at the global and national levels. Many of the key events and underlying changes in market condition and operation are referred to. He then considers a number of the more specific other regulatory and supervisory initiatives announced over the past 12 months.

George Walker, Centre for Commercial Law Studies, London

UK regulatory review

A number of initiatives were taken forward during the last regulatory year by the UK Tripartite Authorities consisting of HM Treasury, the Bank of England and the Financial Services Authority (FSA). A formal consultation paper Financial Stability and Depositor Protection: Strengthening the Framework had been issued in January 2008 following an earlier discussion paper titled Banking Reform: Protecting Depositors in October 2007. Three further papers were issued in July 2008 including Financial Stability and Depositor Protection, the creation of a new Bank Special Resolution Regime (SRR) and a separate paper titled Cross-Border Bank Insolvency. The FSA had issued a discussion paper on liquidity requirements for banks and building societies in December 2007 with an important follow-up document in December 2008. The FSA undertook an internal review of its supervision of Northern Rock with a report being issued in March 2008 that included the establishment of a new ‘Supervisory Enhancement Programme’ (SEP). Northern Rock was nationalised on 17 February 2008 and the Bradford & Bingley on 29 September 2008. The Government confirmed that it would waive any competition objections to the proposed merger of Lloyds TSB with HBOS on 17 September 2008. This was later approved by separate shareholder meetings of both banking groups. The UK Government found itself embroiled in a bitter dispute with Icelandic authorities concerning the compensation payments to be made to UK depositors with major Icelandic banks including Glitnir and Landesbanki. The Government’s recapitalisation of the amounts of capital to be injected into the major UK commercial banking groups was confirmed by the Government on 13 October 2008 following the rescue package announced by the Treasury on 8 October 2008. The Chancellor of the Exchequer announced his financial stimulus package as part of the pre-Budget report (PBR) in November.