Bank regulation Techniques
Financial regulation and supervision within the United Kingdom has a history of being very informal, though this could be argued to be more efficient . Regulation can be seen as "the narrower process of setting rules, both by supervisors and by law" , though it should be noted that regulation should not have the effect of guaranteeing that firms will never fail. The specific purpose of regulation is to "ensure the safety and soundness of the financial system and economic neutrality in the allocation of credit with the ultimate goal to safeguard confidence in the banking system" . As an upshot of the secondary banking crisis in the early 1970's the 1979 Banking Act was introduced . This set out the first regulatory requirements which banks had to adhere to . The collapse of Bearings and the Bank for Credit and Commerce International (BCCI) prompted further regulations to be introduced and this was through the Banking Act 1987 .
The current legislation is under the Financial Services and Markets Act 2000 which came into force on 1 December 2001. This transferred the task of regulating the banking industry from the Bank of England to the Financial Services Authority (FSA), and treats core banking as "just one more financial service to be regulated" . The Memorandum of Understanding (MOU) was also introduced which details the interaction between the Bank of England, the FSA and the Treasury in ensuring financial stability within the economy. There are four main objectives of banking regulation which are to prevent systemic risk, to protect consumers, the prevention of fraud plus money laundering and to encourage competition.
The desired method of prudential regulation is to prevent unstable banks from actually entering the market place. This within the banking sector is known as screening.