The European Commission’s proposals for the recovery and resolution of financial firms set out measures to strengthen the supervision of financial institutions and mechanisms to ensure that, if problems do arise, firms can be allowed to fail without detriment to the customer and with minimal impact on the wider economy.
Similar measures were introduced in the UK by the Banking Act 2009 and Financial Services Act 2010, which give the Bank of England powers to deal with a failing firm and require all banks to have in place recovery and resolution plans.
In its response to the European Commission’s consultation, the BBA stresses: no firm should be considered too big to be subject to an orderly resolution process in the event of its failure; international cooperation is key - agreement in the EU should be followed by co-ordinated implementation across the world’s major financial markets; over-planning will be counter-productive – the multiplicity of business models and possible disaster scenarios mean that there will always be circumstances which have not been anticipated.
The new rules need to be sufficiently adaptable to meet such a challenge, according to the BBA. Whilst more intrusive supervision is appropriate, this must not cross the line into micro-managing business and second-guessing management; and the economic impact of the proposals needs to be assessed fully – a balance needs to be struck between financial stability and economic growth.
Commenting, Angela Knight, BBA chief executive, said: “The UK banks are offering a positive lead to the EU and the banking authorities on how to build on the very real lead given by the UK - whether through the legislation passed in the last two years or the regulatory action being taken on recovery and resolution.
“Our engagement with the European Commission on this - as shown by our response to this major consultation - illustrates fully that this industry is building for a future in which we achieve the right balance between enabling a banking industry which can support growth but which also fully understands that in the event of future failure the taxpayer cannot be expected to stand in.
“The intervention during the financial crisis was exceptional and we fully understand this cannot happen again.
“Very real steps have been taken here in the UK - and we are now seeking to build on these in Europe and internationally.”
