Banks now 'bulletproof' and must start lending – Sants

Published on Wednesday 15 October 2008 21:47

BRITISH banks are now "bulletproof" following the government's £31.5 billion emergency refinancing deal, the UK's chief financial regulator claimed yesterday.

Hector Sants, the chief executive of the Financial Services Authority, said the part-nationalisation had left Royal Bank of Scotland, HBOS and LLoyds TSB "extremely well capitalised"

And Sants urged the banks to use the extra money they will be getting from the government to increase lending to business and help the flagging UK economy.

Asked about the position of the banks after the government's move, Sants told an audience in Edinburgh: "They have been recapitalised to withstand shocks we don't expect to occur, to make them bulletproof – the intention being to generate confidence in the system.

"They are extremely well capitalised. Therefore it would be appropriate to for them to utilise that capital for commercial purposes and make a return to minimise a potential downturn."

Sants defended the role of the FSA which has been criticised for failing to act to prevent the current financial crisis, admitting that the regulator had made mistakes but saying "we have learnt our lessons".

He apologised for failings in the FSA that led to the nationalisation of Northern Rock.

Sants said the FSA, which is responsible for regulating the UK's banking sector, now had the right framework to address further banking crises, where previously it had failed to "follow through" on its approach.

He said the regulator's "principles and outcome-based" approach to regulation was "the right way forward".

Sants continued: "The (banks'] management were not thinking 'do I have a durable business model?' and 'what are the consequences of what my actions, what is the risks I am running?' The regulator was not challenging and testing with those questions."

Sants was speaking as a guest of Scottish Financial Enterprise and Edinburgh Chamber of Commerce. He cited a report released earlier this year that clearly apportioned at some blame to failings of the regulator's monitoring of banks including Northern Rock.

The FSA will next year publish a paper on reforming the global regulatory framework to help governments address financial and accounting regulation.

Sants, who had been invited to speak to the Edinburgh audience nearly a year ago, said he had changed his speech to address the recent "extraordinary events".

"I am sure you realise these unprecedented market developments have required these unprecedented set of interventions by the authorities," he said.

"But I do believe they are the right set of interventions and the necessary set of interventions and we are now on the road to restoring financial stability and market confidence not just in the UK but also worldwide."