UK keeps up heat on big banks for "living wills"

LONDON Thu May 10, 2012 11:44am EDT

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LONDON May 10 (Reuters) - Britain's top banks were told on Thursday they must still submit by June "living wills" spelling out how they would be saved or wound up in a crisis without relying on a taxpayer bailout, six months ahead of rivals elsewhere in the world.

The Financial Services Authority (FSA) wanted to publish the final rules by now on how banks should draw up the recovery and resolution plans, even though they may need tweaking once global and European guidelines are agreed.

The exercise is costly and time consuming as banks may have to reconfigure the business to show that if in trouble, parts can be wound up without bringing down the whole firm.

The lack of recovery plans and resolution packs meant the government had to step in and nationalise Northern Rock bank at the height of the crisis.

In a bid to keep up pressure on lenders and shape the global debate, the watchdog instead published draft rules on Thursday, saying the final version won't be published until autumn at the latest.

"Major reforms have been taken forward both nationally and internationally to increase the strength and resilience of our banking sectors but we need to maintain momentum," said Andrew Bailey, FSA director of banks and building societies.

The six biggest banks, which include Barclays, HSBC , Lloyds and Royal Bank of Scotland, must still be ready by next month, however.

"Large firms involved in the pilot exercise will submit recovery plans and resolution packs by the end of June, as agreed with their supervisors," the FSA said in a statement.

The Financial Stability Board, a regulatory task force for top 20 economies (G20), has set an end of 2012 deadline for the world's biggest banks to complete their living wills.

The European Union's executive European Commission has delayed a draft law on cross-border bank resolution and recovery. Mario Nava, one of its senior officials, told a conference in London on Thursday it would come "quite soon".

It was also hard for the FSA to finalise its own rules before more details emerge of UK plans to force lenders to ringfence their retail arms with higher capital buffers.

The FSA said remaining large firms which are not headquartered in Britain, will now have until the end of the year to complete their UK living will, in line with the FSB deadline.

All other firms will get more breathing space and be told by their supervisor when they must submit what are also dubbed "death plans".

Michael McKee, a financial services partner at DLA Piper law firm, said Britain has led the world in requiring most from banks in their living wills and Thursday's announcement signals this hard approach won't change.

"It does make sense, however, to delay implementing the rules pending the EU position becoming clear," McKee said.

The aim of the recovery and resolution plans is also to stop banks being too big to fail, meaning they would always be rescued by governments, as many were during the financial crisis, including Lloyds and RBS.

"It is interesting that whereas the United States is pressing ahead with a fully analytical approach to resolution, the FSA is still in an information gathering mode," said Simon Gleeson, a financial lawyer at Clifford Chance law firm.

"However, given the delays at EU level, it is hard to see how they can do anything more at this stage," Gleeson said.

The FSA said the guidance published on Thursday is directed at all financial firms with assets exceeding 15 billion pounds ($24.24 billion).

The watchdog will consult at a later date on applying the rules to UK branches of firms from outside the European Economic Area that don't have subsidiaries in Britain.

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