BBA calls for international approach to bank failure

Nia Williams

November 10, 2011

Responding to the Financial Services Authority’s recent consultation on recovery and resolution plans (RRPs), the BBA restated its support for RRPs which minimise the impact of any future bank failure on financial stability and any need for public financial support.

In its submission the BBA said:

• the UK approach to RRPs should reflect internationally agreed recommendations on bank resolution, particularly forthcoming legislation from the EU on crisis management. Not to do so would result in expensive duplication of effort and risk creating misunderstandings between regulatory authorities in different countries;

• more data does not mean better outcomes. Banks are being asked for large amounts of data on counterparty and contractual exposures, which may lead to information overload rather than clarity over the resolution methods. Agreement on the optimum level of information for regulators and banks needs to be reached; and

• the UK solution makes welcome recognition of the need to adopt a proportionate approach with smaller banks. There is no need to burden small banks with the same level of recovery resolution planning as larger, more systemically important banks.

Simon Hills, the BBA executive director for prudential capital and risk, said: “The UK proposals complement the Basel Committee’s ‘more capital, more liquidity’ initiatives to reduce the probability of a bank failure and its negative impacts on society.

“Our approach should be aligned with the proposals expected any day now from the European Commission, which themselves build on international agreement, as the greatest problems occur when a bank group active across international borders gets into trouble.

“A co-ordinated approach will improve the outcome for all.”

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