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Boe: Banks Are Still Too Big To Fail

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Telegraph 17/3/14

'The world’s largest international banks are still too big to fail and resolving this issue remains the biggest problem for global regulators, according to the top Bank of England official in charge of financial stability. Sir Jon Cunliffe, Deputy Governor of the Bank of England, said that six years on from the financial crisis he remained worried at the ability of the authorities to successfully wind up a struggling major institution in the event of a new crisis.

“We have made a lot of progress on too big to fail. But we are not there yet. I do not think we can say with confidence now that we could resolve a failing global giant,” said Sir Jon, who is responsible for the stability of the British financial system.

Speaking at Chatham House, Sir Jon urged governments across the world to sign up to common standards of regulation for banks, warning “if we don’t hang together most assuredly, one way or another, we will hang separately.”

He said: “Resolving global systemically important banks and ensuring they are international in death as well as life, mutual trust has to be built on common standards and rules to ensure banks have debt that can be safely bailed-in in the right amount and location.”

Sir Jon was a senior member of the Treasury delegation involved in the G20 crisis talks held in London in November 2008 just two months after the collapse of US investment bank Lehman Brothers sparked the financial crash that led to the failure or near collapse of several major lenders, including HBOS and Royal Bank of Scotland.

He joined the Bank of England last July having been the UK's Permanent Representative to the European Union, replacing Paul Tucker as Deputy Governor after Mr Tucker moved to the US to join Harvard Kennedy School and Harvard Business School as a senior fellow.

His speech comes ahead of the Brisbane G20 meeting in November which will see more discussions on reforms aimed at avoiding a repeat of the crisis and making sure banks are better able to withstand market problems through larger capital buffers, greater access to liquidity, and lower levels of leverage.

British banks today already hold £150bn in extra capital compared to the amounts held before the crisis, while globally the world’s largest banks have about $500bn (£300bn) more capital.

Some industry executives have complained the higher capital requirements have decreased the ability of banks to lend to retail and business customers, but Sir John said he disagreed with their arguments and that well-capitalised lenders were a vital part of a strong economy.

“As we saw in Japan and see elsewhere, weak banks desperate to do what they can to improve their capital positions, but unwilling to bite the bullet and issue fresh equity, can become zombies of little use to the real economy,” he said.

One of the main changes since the crisis has been to increase the ability to force losses on bank creditors, in particular bondholders. So-called “bail-in” debt is a key part of the reforms aimed at preventing problems in the banking system leading to taxpayers being again forced to bail out lenders.

Sir Jon described the bail-in rules as the “bedrock” of the incoming European Union directives on resolving failed lenders and said it was “crucial” the European Parliament gave its approval to the reforms.'

Sorry for beign contrary.Giving the bond holders was an option back in 2008,they just chose not to take it.

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Conversely in the modern economy can banks now only "operate" if they are too big to fail?

I think thats what the nationwide deduced.

They didnt go bankrupt in 07/08. Rather than allowing them to grow by picking up banks assets for about 30-40p in the pound, as would happen in a free market, Instead Brown rewarded them by having all building socs make bigger contributions to FSCS to pay for banks.

Since then theyve gone all out on irresponsible lending. Afterall, why not?

I guess modern economy should be a euphemism for 'complete criminality'

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'The world’s largest international banks are still too big to fail....

Even that is untrue as the banks did fail - and have continued in their failure..

It should be more like:

'The world’s largest international banks are still too big to be allowed to fail.

Just saying.

Edited by billybong

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British banks today already hold £150bn in extra capital compared to the amounts held before the crisis, while globally the world’s largest banks have about $500bn (£300bn) more capital.

As usual they're still talking about the lipstick they've put on the pig but it would have been helpful if the article had gone into some detail about the background reasons and figures that result in the requirement for all that extra capital - apart from needing a few £billions for bankers bonuses and lobby money that is. A bit of explanation and some figures explaining why the banks are still too big (to be allowed ) to fail would also have been helpful.

A photograph of the BoE building from a different angle would also make a change for readers - taken from some distance above the building would be more appropriate and even the right thing to do.

Edited by billybong

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As usual they're still talking about the lipstick they've put on the pig but it would have been helpful if the article had gone into some detail about the background reasons and figures that result in the requirement for all that extra capital - apart from needing a few £billions for bankers bonuses and lobby money that is. A bit of explanation and some figures explaining why the banks are still too big (to be allowed ) to fail would also have been helpful.

A photograph of the BoE building from a different angle would also make a change for readers - taken from some distance above the building would be more appropriate and even the right thing to do.

An extra $300bn capital on how many liabilities its in the multi-trillions. they held 3% capital against mortgages in 2007. It'll probably go to 6% max (even though people will pretend its higher but you can "risk weight" your assets to make them as safe/risky as you like). Even at 6% it would take a tiny fraction of defaults to bankrupt them.

People just need to take a stand and stop paying their mortgage and rent. How many would it take before you can't jail everyone? 5000? 10000? 100000?

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Sir Jon described the bail-in rules as the “bedrock” of the incoming European Union directives on resolving failed lenders and said it was “crucial” the European Parliament gave its approval to the reforms.'

Will the assets and wealth of the people responsible for any bank failure also be 'bailed in'? Perhaps a bit more pain and bit less gain might be in order here?

I liked Hugh Hendry's suggestion to prevent people speeding in their cars- a large spike set in the center of the steering wheel.

We need the financial equivalent of that spike- a rule that strips the assets of all top earners in any financial institution that fails and requires either a bail out or a bail in.

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We need the financial equivalent of that spike- a rule that strips the assets of all top earners in any financial institution that fails and requires either a bail out or a bail in.

Unlimited liability for senior bankers? I doubt that would ever happen in the bankocracy.

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Will the assets and wealth of the people responsible for any bank failure also be 'bailed in'? Perhaps a bit more pain and bit less gain might be in order here?

I liked Hugh Hendry's suggestion to prevent people speeding in their cars- a large spike set in the center of the steering wheel.

We need the financial equivalent of that spike- a rule that strips the assets of all top earners in any financial institution that fails and requires either a bail out or a bail in.

The Truth About Banking, Busts and Bailouts:

Video is along those lines.

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So, let's get things straight. Five years on, the banks are still too big to fail... the deficit is still 7% of GDP... emergency base rates of 0.5% are still in place... house prices and rents are still stratospherically unaffordable in much of the country... and no attempt whatsoever has been made to apprehend the financial criminals responsible for the original bust.

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How do you stop them becoming too big if you let them create most of the money in circulation?

When you have NR, HBOS & RBS all collapsing together as a result of the same practices, is it just the banks that failed, or the system itself?

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So, let's get things straight. Five years on, the banks are still too big to fail... the deficit is still 7% of GDP... emergency base rates of 0.5% are still in place... house prices and rents are still stratospherically unaffordable in much of the country... and no attempt whatsoever has been made to apprehend the financial criminals responsible for the original bust.

That was my conclusion.

Imagine if, seven years ago, we had no electricity for a week.

It came back on, but might go off again any day now for precisely the same reasons.

And an unelected bloke pops up and says "Yeah, we're sort of responsible for this. We've been at it for seven years, but we still haven't sorted it".

I fear people might be angry.

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So, let's get things straight. Five years on, the banks are still too big to fail... the deficit is still 7% of GDP... emergency base rates of 0.5% are still in place... house prices and rents are still stratospherically unaffordable in much of the country... and no attempt whatsoever has been made to apprehend the financial criminals responsible for the original bust.

He [Osborne] won't say it but no more boom and bust! Yes the mpc is worried about the spare capacity calcs with public disagreements. Maybe some will start awarding higher pay of the back of this unbalanced recovery. There seems to be restraint in the public sector pay settlements. I guess because the recovery is well not sustainable. So timing of the slowdown pre (like last time eith Gordon) or post election do we think?

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