http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7079903.ece
March 29, 2010 MPs call for a 'radical reform' of UK banks Gary Parkinson - <http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7079903.ece#comment-have-your-say> MPs are calling for "radical reform" of Britain's banking system to ensure taxpayers are not left to foot the bill the next time a lender fails. The Treasury Committee, which says that the public would not stand for another bailout, is urging the Government not to rule out breaking up banks that are seen as too big to fail. Ministers have indicated that they are not in favour of splintering major lenders, arguing that so-called "narrow" banks and more complex institutions both failed. Banks are to be forced to keep more cash to hand to help mitigate any future short-term funding problems, and to bolster their financial reserves to make a closer connection between risk and reward. But the committee, led by John McFall, the chairman, argues that the latest crisis occurred despite repeated attempts to do just that and is doubtful about how effective using only the existing regulatory tools can be. Mr McFall said: "We can never guarantee failures will not occur again. It is crucial therefore that in addition to improving risk management, regulation and raising capital and liquidiy requirements, wider structural reform remains on the agenda." The committee applauded plans to force banks to draw up "living wills", to help give confidence that a big international bank could fail smoothly. These, it said, would allow the Govenment to inflict losses on all the creditors of a bank because it would fail in an orderly way, as well as encouraging bondholders to pay closer attention to the bank's managment and solvency. Living wills would also remove some of the "moral hazard", whereby lenders are discouraged from taking unacceptable risk while chasing higher returns because they are confident that they will be bailed out should the worst happen. But the report stressed that the "irrational exuberance" of the boom years should not be superceded by "equally irrational restrictions" on banks. [Non-text portions of this message have been removed]
