Turner: new powers may be too weak

The Bank of England's ideal of 'macro-prudential' regulation may be powerless to deliver credit growth, Lord Adair Turner, the Financial Services Authority (FSA) chair, has warned.

Using his annual Mansion House address, Turner argued that the overhaul of the UK's regulatory system might not smooth out the economic cycle as its proposers, David Cameron and Nick Clegg's coalition government, hope.

Choosing to ignore the 'white elephant' in the room as Turner described it, and skip over the untamed eurozone crisis and the upcoming meeting of EU leaders to resolve it, Turner said his speech may be his last chance to air his views about the new rules set to govern Britain's financial sector.

'Macro-prudential policy in downswings may at times, like interest rate policy, be like "pushing on a string",' Turner said.

He explained that while in theory the UK's new regulatory system has been designed to prevent credit booms via increased capital requirements and doing the opposite during a bust to encourage growth, Turner said that high capital levels may also be required when the economy is in a down phase.

'Uncertainty could argue for higher capital levels to mitigate market concerns about solvency and thus help reduce pressures in funding markets,' he said.  Ultimately, the FSA chair argued there may be no let up in the strict capital requirement rules enforced on lenders and financial institutions even in times like the current slowdown.