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Banks must prepare for future crisis, finance chief warns
Ben Bailey30 Jun 2009
The Deputy Governor of the Bank of England called today for a "radical simplification" of some of the biggest banks under contingency plans for future financial crises.
In a speech at the British Bankers' Association (BBA) annual conference in London, Paul Tucker said some banks that are "too big to fail" need a structural overhaul to aid rescues attempts in the event of an emergency.
He added that all banks also need detailed contingency planning and information in place to help in times of crisis, echoing comments last week from Bank Governor Mervyn King, who suggested they write a "will" to assist an orderly wind down.
Mr Tucker said: "Banks must structure and run themselves to permit orderly wind down. And they must invest to provide the authorities with the information they need to do so."
This "must surely entail a radical simplification of some group structures", he added, but warned it will "not be easy and it will not be cheap".
The second in command at the central bank reiterated calls for a pre-funded insurance scheme for savings deposits that is also risk-based to ensure the industry bears the cost of failure.
And banks should have information on their institution and assets ready to hand to help potential bidders in the event of a rescue deal, as well as to aid the authorities in any wind-down.
Mr Tucker said: "This crisis has reminded a generation of some old truths. Banks can fail.
"But they matter enormously to our economies and so the authorities cannot afford to stand back and allow disorderly systemic failure.
"Going forward, we cannot have a regime where the upside for risk-taking goes to shareholders and management, but the downside falls to the general taxpayer."
"It is important to bring about the kind of regime shift necessary to restore confidence and trust in the industry without a Government prop," he said.
