This article was originally published 24 March, 2009

Introduction

On 18 March, 2009, the UK Financial Services Authority (the "FSA") published the Turner Review of global banking regulation (the "Review"). At the same time, the FSA published a detailed Discussion Paper DP09/2 – a Regulatory Response to the Global Banking Crisis (the "Discussion Paper") setting out its regulatory proposals to address the issues raised by the Review.

This note does not attempt to summarise either the Review or the Discussion Paper (such summaries are widely available). Instead,we set out below the most significant implications arising out of the Review and the Discussion Paper for the banking, securities and investment funds sectors.

Regulatory Capital and Liquidity

There will be a significant increase in regulatory capital requirements for banks and securities firms

Increased regulatory capital requirements will apply both in respect of a bank's banking book as well as its trading book. Securities firms will also see an increase in regulatory capital requirements where they have significant trading books (even where they may have no "banking book").

In order to address pro-cyclicality concerns, it is likely that banks will have to hold a counter-cyclical buffer of 2 to 3% of risk-weighted assets at the top of any economic cycle. This is also referred to as "dynamic provisioning".

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