Tucker urges regulators to end too big to fail banking model
GOVERNMENTS must end the “too big to fail” banking model with a credible resolution mechanism for failed banks or face higher borrowing costs, a top Bank of England official said yesterday.
States must ensure markets never again view banks as guaranteed, said deputy governor Paul Tucker, which means creating a system which successfully contains disorder when a bank collapses, doing as little damage as possible to retail customers, the sector or the government.
This “can lead to a much better financial system, with stronger market discipline and so less stability-threatening imprudence,” Tucker said – but he warned, “there is no silver bullet.”
“We need resolution tools that work in different contexts for different types of bank/dealer,” reflecting the complexity and variety of firms in the industry.”
In particular Tucker argued in favour of “bail in” bonds, where debt becomes equity to recapitalise struggling banks.