The UK government has decided to tighten its regulations on the banking industry in order to come out from the recession and to provide more security to consumers' investment.
As part of its efforts to come out of the ongoing financial downturn, the UK government has decided to further tighten control on the banking sector, including supervising perks given to staff, as reported by Banking Business Review.
The government has taken a number of steps to support the sinking banking sector such as pouring investment of over £1 Trillion ($.4 Trillion), nationalization of some financial organizations (like Northern Rock and Bradford & Bingley), buying majority stakes in Lloyds Banking Group (LLOY) and the Royal Bank of Scotland (RBS).
A new regulator is said to be set up with absolute power to supervise the activities of banking sector and will impose tough penalties in case of violation of regulations by any financial organization. The decision has been taken in the backdrop of severe criticism of tri-partite system involving the Treasury, the Bank of England and the Financial Services Authority for their failure to analyze signs of financial crisis.
The new Council for Financial Stability will leverage on the Bank and FSA expertise by studying their regular reports such as the Financial Risk Outlook and the Financial Stability Report and formally working on their recommendations. This approach will not only help the council to deal with present issues but also monitor the financial stability of the system and effectively deal with the long-term risks as they come up.
The proposed measures are part of the government's plans to tighten regulations and better protection of customers' investments in view of the current financial crisis.
Meanwhile, the British Finance Minister has said that the banks should build a strong capital reserves in good times to take benefit of the market recovery, minimizing the need for government help.
Rejecting the recommendations of the House of Common to limit the size of banks, he said that banks need to have enough capital reserve as a buffer against any crisis so that consumers remain protected.
According to a Research Analyst at RNCOS, "Appropriate and effective regulation, strong capital reserve to deal with risk and quality supervision are essential to foster the banking industry. In today's tough economic times, it is imperative for the British banks to comply with the regulations to ensure long-term success of the country's economy and the banking sector."
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