In a speech to the Cass Business School, Turner called for capital requirements to be set higher than the 7% proposed under Basel III.
The peer backed the ideas put forward by Monetary Policy Committee member Professor David Miles to set equity capital requirements instead at between 15% and 20% of risk weighted assets.
He said: “In an ideal world equity capital requirements would be set much higher.
“Today’s regulators are the inheritors of a half century-long policy error, in which we have allowed private sector banks to pursue their private interest in maximising leverage levels, at times influenced by a deep intellectual confusion between private costs and social optimality.”
Turner also confirmed the Financial Stability Board’s recommendations for monitoring shadow banking, including the regulation of minimum margin requirements in repurchase agreements and other secured financing markets.
“Many of the measures we could take to increase stability – such as higher capital requirements against trading activities or against intra-financial system complexity – might well reduce the scale of trading activity and the liquidity of some markets,” he said.
“If these activities and related liquidity are value creative we may need to make a trade off between stability and allocative efficiency. If they are zero sum or rent extracting there is no such trade off.”
