Financial Regulatory Forum

UK banks should draw up living wills-FSA

October 22, 2009

   LONDON, Oct 22 (Reuters) – Britain’s financial watchdog said on Thursday banks should start drawing up living wills so they can be wound up quickly in times of trouble without destabilising the broader financial system.
   The Financial Services Authority said a small number of big UK banks will have begun drawing up such contingency plans by the end of the year, a step it expects will require some business models to be simplified.
   The FSA has been galvanised into action after Britain was forced to use billions of taxpayer money to shore up banks such as Northern Rock, Bradford & Bingley, RBS <RBS.L> and Lloyds <LLOY.L>.
   “Restructuring could include clear separation between retail deposit taking business and businesses involved in proprietary trading activities, with the latter able to fail even if the former were supported in crisis conditions,” the FSA said.
   There is also strong case for applying some form of capital and even liquidity surcharge internationally on banks deemed too big to fail without wider damage or too big for one country to rescue, the watchdog said.
   “A capital surcharge could be combined with an approach to global banking groups which places greater emphasis on the standalone sustainability of national subsidiaries, with over understanding that home country authorities will not be responsible for the rescue of entire groups,” the FSA said.
   The FSA was clear that few of its recommendations would be adopted unilaterally for now, as it has drawn much criticism for going out on a limb with tougher liquidity rules.
   The bulk of its recommendations outline what the watchdog is seeking at the international level, although many are already being worked on in global bodies such as the Basel Committee on Banking Supervision and the Financial Stability Board.
   The Basel Committee is set to finalise higher levels of core capital requirements by the end of 2010 when tougher trading book capital rules take effect.
   “The direction of travel is clear: the overall level of capital in the banking system must be significantly increased over time,” FSA Chairman, Adair Turner said in a statement.
   The report comprises the second raft of recommendations following a review of the financial crisis by Turner.
   The report mirrors several initiatives being taken at the global level by the G20 to apply lessons from the credit crunch such as raising trading and core capital requirements and calling for central clearing of OTC derivatives trades by the end of 2012 at the latest.
   Last month the G20 group of countries set an end of 2010 deadline for all important banks to draw up contingency plans for a speedy wind up if they get into trouble.
   ((Reuters messaging: huw.jones.reuters.com@reuters.net; + 44 207 542 3326; huw.jones@thomsonreuters.com; Editing by Victoria Main))
 Keywords: BRITAIN FINANCIAL/REGULATION 
  
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 Thursday, 22 October 2009 11:41:17RTRS [nLM479841] {EN}ENDS

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