Introduction

As the financial crisis worsened with the fall of Lehman Brothers in September 2008, calls for an in-depth review of the causes of the crisis surfaced.

The Turner review, commissioned in October 2008 by The Chancellor of the Exchequer, and published in March 2009, looks at the causes of the current economic crisis and asks “what needs to be done to reduce the probability and the severity of future financial crises.”

Key findings

• Overview – The Turner Review is broken down into three sections that look at the causes behind the current crisis, required changes in regulation, wider issues raised by the crisis. A final fourth section summaries the recommendations and looks at their practical implementation.
• Lord Turner identifies three major causes of the current economic crisis – macro-economic imbalances, financial innovation of little social value and important deficiencies in key bank capital and liquidity regulations.
• While the report focuses on the fundamental long term changes that need to be made to the financial services industry, it does not propose solutions to the more short-term challenges banks are facing.
• Reactions - The Turner Review was generally well received by the financial services industry. Many commentators liked that fact that the Turner Review places London at the forefront of international regulatory change. It is hoped that the review will restore confidence in London as the leading centre for financial services in the world.

Conclusion

While the current economic downturn may not be as severe as the great depression of the 1930s, Lord Turner points out in the introduction to his report that what is more worrying is the way that financial problems emerged in many countries simultaneously.

There is little doubt that, through their failure to enforce the regulations that are already in place, supervisors are partly to blame for the financial crisis. However, the crisis has also exposed flaws in the regulations themselves. The actions proposed in the Turner Review could alter the face of the financial services industry forever, but is this necessarily a bad thing?

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Tagged with: 2009, regulations, risk, Risk Research Report