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CMI 101 with Peter Matheson, Economic and Financial Counsellor at The British Embassy
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CMI 101 with Peter Matheson, Economic and Financial Counsellor at The British Embassy

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On May 10th, Third Way hosted a Capital Markets 101 discussion on the British response to the global financial crisis. The event featured Peter Matheson, Economic Counsellor of the British Embassy in …

On May 10th, Third Way hosted a Capital Markets 101 discussion on the British response to the global financial crisis. The event featured Peter Matheson, Economic Counsellor of the British Embassy in Washington, D.C.

Published in: Economy & Finance, Business

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  • 1. Skyfall: British Banking Afterthe Financial CrisisPeter MathesonEconomic and Financial CounsellorThe British EmbassyUNCLASSIFIED
  • 2. UK Financial Services Reform• Architectural Reform• Structural Reform• European Reforms• LIBOR• Resolution• Growth and the widerpolicy agenda
  • 3. Key Facts• The UK’s trade surplus of $51 billion in 2011 was morethan triple that of the U.S. ($16 billion)• London was ranked first in a March 2013 survey ofinternational financial centers• 1,400 financial services firms in the UK are majorityforeign-owned• London has 251 foreign banks (more than any other city)• Since 2005, 2.7 million people have created bankaccounts in the UK (for a total of 9.1 million people withbank accounts in the UK)• 2 million people work across the UK in financial andrelated professional services, but more than two thirds ofthem are employed outside of London
  • 4. Source: TheCityUKFinancial Centers in the UK
  • 5. UK Financial ServicesSource: PricewaterhouseCoopers/City ofLondon Corporation
  • 6. Bank Popularity: U.S. Polling DataPew Center for the People & the Press Political Survey, Feb 2012Are banks and other financial institutions having a positive ornegative effect on the way things are going in this country?
  • 7. What are the problems policy istrying to address?• The financial crisis of 2007 onwards• The financial sector in the UK economy – as anemployer and business• The financial sector as a lender to the rest of theeconomy
  • 8. Architectural Reform• The UK previously had a “tripartite system”• Financial Policy was made by three institutions: HMTreasury, the Bank of England and the FinancialServices Authority (FSA)• Policy overlap and under-lap• New system key points:▫ Bank of England looks at the state of the financialsystem as a whole▫ Within the Bank, Prudential Regulatory Authorityregulates individual banks and Financial PolicyCommittee tailors policies over the economic cycle▫ Outside the Bank, Financial Conduct Authorityenforces good and lawful behaviour
  • 9. Structural Reform• IndependentCommission on Banking• Sir John Vickers• Ring fencing of retailbank operations• Little cross over betweenthe two operations• “Electrification”Paul VolckerSir John Vickers
  • 10. European Policy Issues• UK a member of theSingle Market• Derivatives• Basel III• Bankers bonusesand bonus caps• FinancialTransactions Tax
  • 11. Resolution• The Banking Act 2009 created a Special Resolution Regime (SRR). ThePrudential Regulation Authority (PRA), in consultation with the Bank ofEngland and the Treasury, makes the decision to put a bank into the SRR.• The SRR powers allow the authorities to:▫ transfer a bank’s business to a private sector purchaser;▫ transfer a bank’s business to a bridge bank - a subsidiary of the Bank ofEngland – pending a future sale;▫ place a bank into temporary public ownership (the Treasurys decision);▫ apply to put a bank into the Bank Insolvency Procedure (BIP) which isdesigned to allow for rapid payments to insured depositors• The Bank of England issued a white paper with the FDIC proposingstrategies to resolve globally active, systemically important banks▫ “Top-down” resolution strategies that involve a single authority apply itspowers in a “single point of entry” at the parent company level
  • 12. LIBOR•The Wheatley Review•A clear case in favour of comprehensively reformingLIBOR, rather than replacing the benchmark•Transaction data should be explicitly used to supportLIBOR submissions•Market participants should continue to play asignificant role in the production and oversight ofLIBOR•Making manipulation a criminal offense•Set the standards for benchmark reform globally
  • 13. Growth and the Broader Agenda• Financial stability is a pre-requisite for economicgrowth• Promoting lending at the same time as tighteningstandards• Boosting competition in the banking sector
  • 14. Conclusion• The Financial Services Act 2012 gives effect to the commitment in theCoalition Agreement to abolish the Financial Services Authority (FSA) andtransfer its prudential supervisory powers to the Bank of England• Establishing a macro-prudential authority, the Financial Policy Committee(FPC) to monitor and respond to systemic risks• Transferring responsibility for prudential regulation to a focused newregulator, the Prudential Regulation Authority (PRA)• Establishing the Financial Conduct Authority (FCA) to ensure that businessacross financial services and markets is conducted fairly and properly• Bringing the LIBOR benchmark into regulation, delivering therecommendations of the Wheatley Review• Implementing the Vickers Review recommendations• Implementing Basel III
  • 15. CONTACT INFORMATIONPeter.Matheson@fco.gov.ukRESOURCEShttp://www.thecityuk.com/research/our-work/reports-list/key-facts-about-uk-financial-and-professional-services/