Desperately seeking solutions
If any name or entity epitomises the recent credit crunch, it is Northern Rock. But the UK lender will also be synonymous with a wider upheaval in the banking system. Due to the UK lender's funding struggles, regulators are proposing a number of new liquidity and supervisory rules for banks.
Whether they are acting in haste is yet to be determined. If the Financial Services Authority (FSA), Bank of England and Treasury are given more powers to regulate banks' activities and take action when banks run into serious trouble, this could well avert another Northern Rock debacle. But as one commentator writes in this month's Mortgage Risk, the risk of moral hazard is heightened when more rules are introduced. David Lascelles, of independent thinktank Centre for the Study of Financial Innovation, explains that the more regulations imposed, the more the responsibility shifts away from lenders, and on to the enforcers of rules. Should a bank not be responsible for its own business decisions, and held solely accountable if those decisions (whether it be a novel funding model or lending policy) fail?
At the moment, it may seem banks need all the help they can get, and that some should not be trusted to look after their own affairs independent of the regulator. But the fact is, risks are inherent in every business model. A swathe of new rules, especially if they are hastily assembled to silence the critics, could be detrimental to the industry.
At the time of going to press, the government's detailed rescue plan for Northern Rock had also been announced. To help speed through a private sector bail-out of the lender, the government has proposed that its mounting funding debts be repackaged into government-guaranteed bonds and sold to the capital markets. As interested buyers have until February 4 to submit their revised takeover proposals, Northern Rock could soon know who its new parent is. As you read this, the bank could even have been temporarily nationalised - pleasing many taxpayers.
Some may question why the fate of one medium-sized lender is that important, given the wider turmoil still occurring in the market. But the bond proposal to save Northern Rock has more significance than many may think. As one securitisation expert points out in this edition of this magazine, if the government is prepared to guarantee these bonds, will that not give Northern Rock an advantage in the funding markets?
The securitisation sector is desperately searching for solutions that will reopen the market. Perhaps the government needs to offer its support here too, and not just to one lender.
Dippy Singh, managing editor.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Fed green lights more capital relief trades
Five US banks authorised to issue repeat credit-linked notes backed by financial guarantees
Basel III endgame: why moving fast might prove better for banks
Republicans are pushing for reproposal, but a rapid finalisation may prove less far-reaching
Isda pushes to ‘decouple’ Simm calibration from model changes
Emir 3.0 prompts effort to separate risk-weight revisions from methodology updates
Basel war on window-dressing may smooth liquidity, at a price
Changes to G-Sib charge could curb year-end repo volatility, but also cut balance sheet capacity
One year on, regulators still want a cure for bank runs
Broad support for higher outflow assumptions on uninsured deposits, but that won’t save insolvent banks
Watchlist and adverse media monitoring solutions 2024: market update and vendor landscape
This Chartis report updates Watchlist monitoring solutions 2022 and focuses on solutions for sanctions (name and transaction) screening and monitoring adverse media and its related elements
Basel Committee reviewing design of liquidity ratios
Focus on LCR and NSFR after Silicon Valley Bank and Credit Suisse, but assumptions may not change
Risk, portfolio margin, regulation: regtech to the rescue
A white paper outlining the complexity of setting the course for risk, margin and regulation
Most read
- Breaking out of the cells: banks’ long goodbye to spreadsheets
- Too soon to say good riddance to banks’ public enemy number one
- Industry calls for major rethink of Basel III rules