March 17, 2014 / 9:30 AM / 4 years ago

BoE's Cunliffe says too big to fail banks still a challenge

LONDON, March 17 (Reuters) - 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 Jon Cunliffe said on Monday.

Cunliffe said setters of international standards have made progress in reforming banking rules since the U.S. lender went under in September 2008 but more needs to be done.

Implementing ambitious rules to make banks hold more capital and avoid needing recourse again to taxpayers’ money has been impressive but the core task of ending “too-big-to-fail banks” remains, Cunliffe told a Chatham House financial conference.

He urged the European Parliament to give final approval to a new European Union law that gives national regulators in the 28-country bloc powers to wind down ailing banks.

But even with the powers to impose losses on bondholders of failing banks to shield taxpayers, further steps were needed.

“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.

Last year, Cunliffe’s predecessor Paul Tucker surprised many in the financial sector by saying a giant bank could now be wound down, albeit not totally smoothly.

Heads of the G20, the world’s leading 20 economies, will meet in Brisbane, Australia in November and 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 the G20’s regulatory reforms will hinge on their consistent application across the world and mutual trust among financial supervisors to avoid unintended consequences, he added.

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 chances this will happen.

Cunliffe echoed this 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, Cunliffe said.

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