Martians in my pants

Actually thats a complete fabrication but if I entitled this blog CP 8/22 I didn't think I'd get much of a response .

The recently released CP08/22 'Strengthening Liquidity Standards' is the FSA's response to the challenges set out to the regulators by the Basle Committee on Banking Supervision in their Sept 08 paper 'Principles for Sound Liquidity Practice'.  An excellent document that set out 17 fundamental principles for the management and supervision of liquidity risk, 4 of the principles were targeted at regulators.

The FSA's response is, in their words, 'far reaching and robust' and states that 'many institutions will need to significantly reshape their business model over the next few years as a result'.

The problem here is that the FSA only has a certain remit and if other countries regulatory bodies are slow to come up to the same standard then UK banks will be harshly regulated to the point of making the UK a comparitively expensive place to do banking business, possibly to the detriment of the future of the City of London. I recently heard the phrase 'banks playing regulatory arbitrage', and I like that description.

The FSA has set themselves an extremely ambitious timeline, with October 2009 as the implementation stage and at no small cost either. The FSA has suggested the cost to the FSA as being £11-£14m, whereas the cost to 'firms' is estimated at £150-£200m (IT, Reporting, training etc).  Software firms everywhere will be hoping some of that cash will fall their way and will already be planning their campaign, but that will be hard cash at a time of fiscal hardship. The FSA has justified this huge effort by stating that the reduction in the costs of systemic instability could be highly significant possibly in the range of £3-£5 billion on an annualised basis, a large discrepancy in the Actual versus Possible columns.  

What will happen?  Will the FSA gradualy water down its requirements and time frames or will the banks be pushed by political will to make the necessary changes and expenditure?  

What do you think?