Financial Regulatory Forum

UK lawmakers seek radical, not rushed bank reform

March 29, 2010

BRITAIN    By Huw Jones
   LONDON, March 29 (Reuters) – Radical and carefully thought reform is needed to shield British taxpayers from having to bail out troubled banks again, a UK parliamentary report said on Monday.
   If a bank is too complex to adopt practical and speedy wind-up plan or living will, regulators should be ready to break it up, the Treasury Committee report on banks said.
   “As a general proposition, we consider it likely that if an institution is too complex to prepare for an orderly resolution, it is too complex to operate without imposing unacceptable risks to the states in which it does business,” the report said.
   “Regulators should take account of any structural difficulties in the preparation of a living will. Living wills, fully applied, will necessarily lead to the structural reform of the banks.”
   Britain’s Financial Services Authority is piloting living wills with a handful of banks so they can be wound up quickly if in trouble without destabilising the broader financial system.
   The government and the FSA reject calls to break up big banks, saying “narrow” domestic banks such as Northern Rock needed rescuing in the crisis.
   Change is pressing for Britain as its banking sector is equivalent to 500 percent of the country’s economic activity, up from 50 percent in the 1970s, the report said.
   Britain, the United States and the euro area has used $14 trillion, or almost a quarter of global GDP, to shore up the financial sector.
   The G20 group of leading countries which includes Britain is considering a cocktail of measures to end “moral hazard” so that banks don’t assume governments won’t allow them to fail.
   G20 finance ministers will also discuss possible levy or tax on bank balance sheets next month to pay for bailouts.
   “We can never guarantee failures will not occur again. It is crucial therefore that in addition to improving risk management, regulation and raising capital and liquidity requirements, wider structural reform remains on the agenda,” committee chairman John McFall said.
   “But the redesign of the system should be for the long term. We must not replace irrational exuberance with equally irrational restrictions,” the report said.
   If it is impossible to set up international resolution authorities for banks, a European framework would be welcomed, the report said.
   One possible reform would be to allow national regulators to require foreign banks to operate as subsidiaries so they are directly regulated by host countries, though this would run counter to European Union single market rules.
    (Reporting by Huw Jones, editing by Ron Askew)
   ((Reuters messaging: huw.jones.reuters.com@reuters.net; + 44 207 542 3326; huw.jones@thomsonreuters.com))
 Keywords: BRITAIN BANKS/REGULATION
  
Monday, 29 March 2010 01:01:07RTRS [nLDE62P1PY] {C}ENDS

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