UK urged not to rush banking reform

LONDON (Reuters) - The government must avoid rushing into excessive banking regulation following the Northern Rock crisis and needs to take time to take advantage of a rare opportunity to push through reform, the UK's top business lobby group said.

"You are now considering a series of seismic changes in the British banking system. Don't rush things," Richard Lambert, director general of the CBI, said in a copy of a speech due to be presented on Thursday at the City of London Corporation.

Regulatory changes are needed following turmoil in financial markets since August, but Britain "could be about to make the same mistake" as U.S. regulators who responded to the collapse of Enron with the damaging Sarbanes Oxley legislation, Lambert warned.

He said banking consultation put forward in January by the Treasury, the Bank of England and the Financial Services Authority (FSA) makes a "good start".

"No one is likely to quarrel with the notion that the regulator needs to take more account of a bank's liquidity, or that the regime for providing emergency liquidity assistance needs reshaping."

But he said any new rules must be measured against a series of benchmarks including an acceptance of the limits of legislation, understanding similar structures in the rest of the world, and clear lines of power and responsibility in any new framework.

Lambert said he also had reservations about the detail of the proposals, particularly around control and lines of accountability for banks entering the regime for troubled institutions.

The roles and responsibilities of the Bank of England and the FSA also need clarification, he said.

(Reporting by Steve Slater; Editing by Erica Billingham)