EVEN one of the largest global banks could be taken apart safely by the United States authorities if it were to fail today, according to banking regulators from the US and United Kingdom.
A US plan for seizing and liquidating a major bank would work if necessary, although it would be messy, according to Art Murton, a senior Federal Deposit Insurance Corp (FDIC) official in charge of planning how to dismantle complex firms, and Bank of England deputy governor Paul Tucker.
They said this on Saturday at an Institute of International Finance event, here.
"I think US authorities could do it today ," said Tucker, who has worked with US regulators on cross-border hurdles to taking down an international firm. "A global financial system will not survive if we don't crack this problem."
The 2010 Dodd-Frank Act empowered the FDIC to seize a firm and dismantle it if regulators think it can't pass through bankruptcy without posing a significant threat to the financial system. This so-called resolution authority hasn't yet been tested, nor have the regulators finished telling banks how it will work.
"We are prepared," Murton said, adding that the agency is still trying to work out the difficult cross-border issues and will be even more ready in another year.
The FDIC is poised to release a written description of how it would liquidate such a firm, using what's known as a single- entry approach to take over its holding company, impose losses on shareholders and let healthy subsidiaries stay open. Government officials and bankers alike have called for a process that will assure markets that the largest banks won't need future bailouts and are no longer too big to fail.
"People are not going to trust banks if they feel that we continue to socialise our losses and walk away when things blow up," said Deutsche Bank AG co-chief executive officer Anshu Jain. "Too big to fail has to be addressed, and that cannot be done by banks alone. We need regulators. We need countries to sit down and work out the very complex legal framework."
Tucker, who is leaving the Bank of England, repeated an earlier statement that the UK is prepared to step aside if the US starts resolving a big domestic bank with a UK presence.
"We, the UK, need a reciprocal agreement from US authorities," he said, adding that he understands the UK approach should be further settled before it can expect "that reciprocal statement of principal". Bloomberg