* Cunliffe: mutual trust key to effective global rules
* Jenkins: go it alone if global rules insufficient
* EU official says U.S. faces test over clearing houses
By Huw Jones
LONDON, March 17 The world's biggest banks still
could not be dismantled safely, more than five years after the
collapse of Lehman Brothers, the Bank of England's deputy
governor for financial stability said on Monday.
International standard setters have made progress in
reforming banking rules since Lehman went under in September
2008, Jon Cunliffe, the deputy governor, told a Chatham House
financial conference. But the core task of ending
too-big-to-fail banks remains, he said.
He urged the European Parliament to approve a new European
Union law that would give national regulators the powers to wind
down ailing banks.
"I do not think we can say with confidence now that we could
resolve a failing global giant," said Cunliffe, Britain's former
ambassador to the EU in Brussels.
Heads of the G20, the world's leading 20 economies, will
meet in Brisbane, Australia in November. Agreeing new rules to
end too-big-to-fail banks was perhaps the most important
regulatory priority for the summit, Cunliffe said.
The success of those reforms will hinge on applying them
consistently worldwide and on mutual trust among financial
supervisors to avoid unintended consequences, he said.
U.S. LITMUS TEST LOOMS
The EU has expressed alarm that the United States is forcing
offshoots of foreign banks to hold capital there, to keep U.S.
taxpayers off the hook if a foreign lender goes bust, even as
Europe introduces reforms to reduce the chances that might
happen. Cunliffe echoed the European concern.
"Regulators and supervisors who cannot trust the
implementation of standards in other jurisdictions will defend
stability in their own jurisdictions by raising barriers," he
said. "Such action minimises the risk of international crises,
but the cost is the rolling back of financial globalisation with
less effective and efficient intermediation on global savings."
Without mutual trust there is a risk of more crises and
fragmentation in global markets, Cunliffe said.
The International Monetary Fund and the G20's Financial
Stability Board, chaired by BoE Governor Mark Carney, can play
key roles in establishing mutual trust, he said.
Robert Jenkins, a former member of the BoE's Financial
Policy Committee, which sets the tone for UK regulation, said a
global standard is desirable if it is sufficient to the task.
"But if the agreed global standard is insufficient, then
national authorities not only might but should deviate in order
to protect their taxpayers," Jenkins told Reuters. The U.S.
initiative bolsters a global set of bank capital rules known as
Basel III, which Jenkins said are insufficient.
EU-U.S. spats have also surfaced over new rules to regulate
"The litmus test will be the U.S. Commodity Futures Trading
Commission's forthcoming rules on foreign clearing-house
recognition," Patrick Pearson, a senior official at the European
Union's executive European Commission, told Reuters.
"To that extent we will learn if they willing to mutually
recognise clearing houses from other jurisdictions," he said.
"The jury is still out."
Lack of trust among regulators is also making it hard to
knit together data from derivatives-reporting venues worldwide,
a participant at the conference said. That means there is still
no single snapshot of risks in the $700 trillion market.
Rachel Lomax, a former BoE deputy governor, told Reuters
that as long as regulators are under domestic political pressure
to crack down on bankers' bonuses, misconduct and other issues,
they will find it hard to develop mutual trust with their