EU lags U.S. in tools to let big banks fail: Bank of England's Tucker

Tue Sep 17, 2013 2:02pm EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Huw Jones

LONDON (Reuters) - The United States has largely cracked the problem of protecting taxpayers from the danger of having to bail out banks that are "too big to fail" while Europe lags behind, Bank of England Deputy Governor Paul Tucker said.

Allowing large banks to fail without the massive disruption seen when Lehman Brothers collapsed five years ago this week has been the ambition of policymakers after governments had to rescue many lenders in the 2007-09 financial crisis.

Such banks, believing governments cannot afford the harm to economies of letting them go under, are tempted to take bigger risks and unfairly benefit from cheaper funding as investors know taxpayers would always rescue them, policymakers have said.

"Were some of the biggest Wall Street firms to fail this week... I think it would be very hard for the President and U.S. Treasury Secretary to persuade the Congress to commit taxpayers' money," Tucker told a London School of Economics seminar on Tuesday.

This is because Congress has given the U.S. administration powers and instruments to wind down big financial firms, though it would not be smooth or without ripples, Tucker said.

"The capital structure of big firms is such that it could be done on a global basis, and I don't think I am alone in thinking that in the official sector," said Tucker, who steps down this autumn to become an academic in the United States.

"I think it could be done now under duress by the American authorities with the authorities elsewhere stepping aside. I don't think that is the position in Europe."

The European Union has yet to approve a law to give supervisors tools to break up and close failed banks.   Continued...

 
The Deputy Governor of the Bank of England, Paul Tucker, addresses the International Association of Deposit Insurers Annual Conference in London October 25, 2012. REUTERS/Neil Hall