Banking authorities in the UK and USA have revealed plans that will limit damage caused by banks falling in to financial trouble. The proposals have come from the Bank of England and the Federal Deposit Insurance Corporation, which is the US institution that would compensate savers if a bank went under and also tries to limit the effects of bank failures on the economy.
The plans detail one national regulator who would be responsible for overseeing the insolvency of larger international banks instead of national bodies dealing with its subsidiaries in each country.
The group have outlined that in the event of a bank collapsing shareholders would lose their money and people who had lent the bank money would end up owning it. It is thought that this would stop governments having to step in to support banks.
BBC business editor Robert Peston commented on the dangers of the plans, “If banks are no longer considered too big to fail, the costs for banks of raising money would rise.”
“That means they would feel obliged to charge their customers rather more for loans and for keeping money safe.”
In addition to the suggested plans the group has recommended that the bigger banks are forced to have enough funding at the top of their organisations to absorb losses, instead of spreading it around complicated organisational structures. In the event of a crisis the management would be responsible for the collapse and replaced. These additional proposals would cover only the biggest international banks, referred to as globally active, systemically important, financial institutions, or GSIFI.Share