FSA's Turner calls for 'radical reassessment' of global banking rules

If you're impatient like I am about the slow pace of true financial system reform and the attendant political tussles over it, I give you a speech by Lord Adair Turner of the Financial Services Authority in the United Kingdom.

I can hear you wondering why we should care what the chairman of the U.K.'s financial services industry regulator thinks. But know this: He's been outspoken on the need for stronger regulation. In fact, he used the phrase "socially useless" in connection with some of what went on trading rooms of big banks prior to the financial crisis.

Don't think I've heard Ben Bernanke or Timothy Geithner be so blunt.

In a speech Turner gave Wednesday evening at the Cass Business School in London, he calls for "radical reassessment" of global banking regulations. OK. We've heard that. But Turner goes deeper into what others have described as radical and what he thinks needs to be addressed.

Turner said the "too big to fail" problem, separating proprietary trading operation from commercial banking, and creating limited purpose banks tend to get all the attention:

There is therefore a danger that if radicalism is defined exclusively in terms of smaller banks and narrow banks, that we fail to be truly radical in our analysis of the financial system, and fail to understand how deep rooted are the drivers of financial instability.

Turner said underlying "too big to fail" status of big banks is credit/asset price cycle, which we commonly think of as "asset bubbles."

He calls for "appropriate leverage constraints" on all categories of traders, and possibly some transaction taxes.

At any rate, Turner's analysis pointedly makes the case that unfettered credit markets are not the solution to avoiding the next financial crisis.

Now the speech is 31 pages long and not a breeze to read, so maybe this is more suited to weekend reading, rather than your coffee break. At any rate, here's a link to the FSA's Web site's speeches page.

Thanks to the Financial Times for the alert on this speech.