Banks will go back to basics under the new system, according to the chairman of the FSA.
Further details of plans from the Financial Services Authority (FSA) to tighten the regulatory system for UK banks, building societies and other financial firms have been released.
In a speech in New York, the watchdog's chairman said that banks would be forced to hold higher amounts of capital at all times in order to protect themselves against future credit crunches - and that reforms would see the firms return to their "basic functions". These comments expand on the investigation Lord Turner conducted on how better to regulate the markets, results of which were released as the Turner Review earlier this year.
The FSA has come in for criticism for its regulation of the system prior to the onset of the credit crunch in 2007. In particular, its "light-touch" methods were blamed for allowing banks such as Northern Rock, which later faced collapse in the crisis, to pursue risky business plans in pursuit of profits and growth.
"A major objective must be to return banking to its basic functions - providing vital services of real value to the real economy," Lord Turner said. "A major lesson of the crisis is that that we cannot rely on market discipline alone or even primarily to achieve this, or to ensure that financial instability risks are contained, but must use robust regulation."
He added: "The required reform is multifaceted. But three elements of reform are particularly important: a macro-prudential approach, major changes to capital adequacy regulation and major changes in the regulation of liquidity."
Lord Turner delivered the speech at the Global Financial Forum.
