Regulators haven't solved 'too big to fail' -Morgan Stanley banker

Sept 24 Tue Sep 24, 2013 11:32am EDT

Sept 24 (Reuters) - The problem of banks being "too big to fail" has not been resolved because regulators have not adequately addressed systemic risk in nontraditional lending markets, a senior Morgan Stanley executive said on Tuesday.

Colm Kelleher, head of Morgan Stanley's institutional securities business, said that banks are still tightly connected to one another in such markets, which might create a systemic panic if one large bank were to get into trouble.

These markets, also known as "shadow banking," include repurchase agreements, structured products and other nontraditional financing vehicles.

"The biggest issue has not been resolved, which is 'too big to fail,'" Kelleher said at a Bloomberg Markets conference.

Kelleher, who was speaking on a panel about whether the financial system is safer five years after Lehman Brothers collapsed, said regulators "haven't addressed the root issues" of the crisis.

He later told reporters that the U.S. "living will" provision that requires large banks to detail how they would be liquidated if they were to fail would not prevent a crisis because it does not address the domino effect that would occur if a large bank were to fail.