"There needs to be a radical simplification of some group structures", Tucker said. "It is important to bring about the kind of regime shift necessary to restore confidence and trust in the industry without a government prop".
Paul Tucker considers how the banking system should bear the cost of insuring retail depositors against loss. He explains the Bank of England’s reasons for preferring a risk-based, pre-funded system of deposit insurance. To head off risk-taking by banks on the back of de facto 100% deposit insurance for retail depositors, contributions to the deposit insurance system should be risk-based to offset the incentives otherwise created.
Commenting on the issue of ‘Too Big To Fail’, Paul Tucker says large institutions have an interest in planning their orderly resolution. A radical simplification of some group structures should be done. This will not be easy but it is important to bring about the kind of regime shift necessary to restore confidence and trust in the industry without a government prop.
In relation to the cross-border aspects of bank resolutions, he notes the potential tension between the regulatory division of labour in normal times and insolvency or resolution regimes, which in distressed times can effectively split banks into a series of de facto ring-fenced entities.
He concluded by saying that “The financial sector has played an enormous role in the development of modern economies. But a regime in which banks can thrive standing on your own feet would be a better market – for all of us".
© Bank of England
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