After two years of catastrophic bank and insurance failures and bailouts, are financial regulators at long last better prepared for the next big banking collapse?
Banks must not be too big to fail, governments across the G20 group of leading nations have promised.
So can taxpayers rest easy now, or are they still on the line to cough up the “ransom payment”, as one official closely involved in the US bailouts put it.
The World Economic Forum in Davos – packed with regulators, central bankers, and big bank and insurance bosses – is a pretty good place to find the answer.
“What if another megabank fails?,” asked a dinner session, and came up with a fairly depressing answer (under Davos rules I can report what was said, but not who said it).
Let’s be clear: the failure or near-collapse of another huge financial institution like Lehman Brothers, AIG or Royal Bank of Scotland is highly unlikely declared all experts loud and clearly at the start of the session…
(… only to start swapping names and weaknesses of candidates for failure as they tucked into their sirloin steaks).
But let’s assume the worst, said the session leader: “We wake up one morning, and MBB – or Mega Big Bank – is gone. What would we do?”
Here’s the dilemma: do we have the right tools for an “orderly resolution” of MBB and allow it to go bankrupt or is the systemic risk so high that we just HAVE to bail it out?
Source : BBC News (Tim Weber Business editor, BBC News website, Davos Switzerland)