Banks urge coordination on cross-border clean-ups

Monday, 11 June 2012 00:00 - - {{hitsCtrl.values.hits}}

COPENHAGEN (Reuters): Banks are well advanced at setting up “living wills” to avoid the need for taxpayer bailouts in the future and want national regulators to work more closely to help cross-border clean-ups, according to an international group of financial firms.

“Living wills” spell out how a bank would be saved or wound up in a crisis without relying on a taxpayer bailout.

Confidence in banks will be lifted when the public is convinced major banks that hit trouble “can be put through an orderly, internationally co-ordinated process to resolve their insolvency or illiquidity” and that “there will be no taxpayer financed bail-outs,” said Douglas Flint, chairman of the Institute of International Finance (IIF) and Britain’s HSBC .

“We believe that we are now moving towards a situation where these two conditions can be met,” Flint said last week as the IIF issued a report on the cross-border resolution of financial firms.

The European Commission proposed far-reaching powers for regulators to take control of failing banks , and the Financial Stability Board, a regulatory task force for top 20 economies (G20), has said living wills need to be completed by the end of the year for the biggest banks.

But proposals differ across countries, and Britain has told its banks they must submit their plans by the end of this month.

Urs Rohner, chairman of Credit Suisse and head of the IIF’’s working group on cross-border resolution, said the FSB should strengthen its approach to secure effective winding down of major international firms.

“Having set out a strong design for speedy and effective resolution of significant financial institutions within each jurisdiction, it should mandate - not just urge - effective cooperation among jurisdictions on cross-border resolution,” Rohner said.

The IIF, which represents more than 450 financial firms, wants a convention that creates a clear mandate for cooperation between national regulators to handle re solving banks that fail, seen as essential given the international reach and complexity of firms.

That was shown by the collapse of U.S. investment bank Lehman Brothers.

The report also showed that the development of a coordinated bail-in mechanism, such as making bondholders absorb losses when a bank hits a problem, is also a useful and powerful resolution strategy.

The European Commission’s proposals refer to writing down “all liabilities” of a bank, such as shares and all debt, to shore up capital depleted by market shocks.