FSB’s Plans for Failing Banks Lack Cooperation, U.K. Lenders Say

U.K. banks are calling on global regulators to revise plans for the orderly closure of failing lenders, saying the proposals wouldn’t ensure national regulators work together to handle cross-border crises.

The Financial Stability Board’s proposals published in July “leave too much scope for some home regulators to potentially act in their own interests rather than in the interests of stability as a whole,” Angela Knight, the chief executive officer of the British Bankers’ Association, said in an e-mailed statement today.

World leaders at the Group of 20 nations asked the FSB to agree on measures for winding down failing banks avoiding wider repercussions for the financial system. Such resolution processes can lead to either a bank being broken up and its assets sold on or a lender being resurrected with a smaller balance sheet with higher capital ratios.

Measures in the FSB paper include requiring banks to draw up so-called living wills indicating how they could be closed in a crisis, and requiring a failed bank’s senior bondholders to take losses to cover the costs of shutting down its operations.

The FSB rules need to be “clear, consistent and authoritative with a clear and sufficient time frame to enable all countries to put in place measures similar to those that the U.K. has already taken,” said Knight. The London-based BBA, which represents lenders in the U.K., was responding to the FSB’s request for comments.

The FSB coordinates the work of national regulators from G-20 nations and sets tasks for global standard-setting organizations such as the Basel Committee on Banking Supervision.

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.