13 December 2012

ICAEW warns further stringent bank requirements may hamper ability to lend

Iain Coke, Head of ICAEW's Financial Services Faculty, comments on the joint paper published by the Bank of England and the US Federal Deposit Insurance Corporation, outlining resolution strategies for large and complex financial services institutions.

Coke says "It makes sense for the US and the UK to coordinate their initiatives, as a large proportion of the world’s largest banks is based in one of the two countries. The countries’ differing legal approaches to bank insolvency have in the past made cross-border bank resolution very challenging. The invention of resolution at group holding company level, as suggested in the BoE/FDIC paper, may be a good way to deal with the cross-border differences."

"The likelihood of taxpayers paying for failing banks should be minimised so further initiatives on how to deal with the potential future failures of large banks are much needed."

However, Coke warns that banks’ ability to lend could be further hampered if the result of the proposals in the paper is further stringent capital or structural requirements. "It is important regulation doesn’t prevent banks from fulfilling their key role in society", he said. He also suggested it is important not to expect too much from the new proposals: "If there is a widespread crisis, as opposed to problems in a single institution, getting the private sector to immediately carry the losses from failing banks might greatly deepen the problem".

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