None of Worlds Biggest Banks Passes Safety Test

None of World's Biggest Banks Passes Safety Test

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Ed Conway

November 05, 2011 4:56 PM

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The world’s biggest banks, including four in the UK, are set to
fail a critical too-big-to-fail test unless they undertake sweeping
reforms, including potentially splitting themselves up, over the next 12
months.
The Financial Stability Board earlier this week published
a list of the world’s 29 biggest and most complex banks, and gave them a
deadline on next October to pass a so-called resolvability assessment –
a health check which will ensure that they could be safely dismantled
if they went bust. I have learnt that the FSB believes, based on its own
initial assessments, that not one of the 29 banks is currently in a fit
state to pass those tests.
The implications of this are
far-reaching. It means those banks, which in the UK include Royal Bank
of Scotland, HSBC, Lloyds and Barclays, must carry out far-reaching
changes to prove that they will not have to be supported by the state if
they do near collapse. Although much attention has been devoted to
broader international rules on the amount of capital these banks must
hold, which the FSB has also increased, regulation insiders believe that
these so-called resolution rules are potentially even more significant.
The
so-called global systemically-important financial institutions
(G-SIFIs) also include Goldman Sachs , JP Morgan Chase and Citigroup –
institutions which will also be forced to overhaul their structures to
ensure they pass the tests.
The plan stems from the experience in
2008, when the world’s financial system was shaken by the collapse of US
investment bank Lehman Brothers, the event which many believe triggered
the global recession that followed. The tests are designed to prevent a
chaotic chain reaction if a bank fails, which in turn will mean that
there is no need for governments to put public money behind their banks,
as Britain’s Government did with RBS and Lloyds.
Under the new
rules, countries around the world will also have to seek agreements with
fellow regulators overseas when an international bank sets up an office
in a foreign country, to ensure that that particular unit remains
separable in the event of its collapse. This would have been of
particular use in 2008, when, just ahead of the Lehman Brothers
collapse, the parent company moved significant amounts out of the UK
subsidiary, leaving it less well-placed to face its collapse.
The
FSB, which laid out this new regime at the G20 meeting in Cannes,
believes that none of the banks are resolvable in what it would call an
“orderly manner”. In order to pass the test “they will have to
re-organise their business operations”, according to a G20 insider. This
could mean prising apart their investment bank and retail banking
operations so they are on an “arms-length” basis or ring-fenced – as was
suggested in the UK Vickers Report on banks earlier this year. It might
imply shutting down international operations or simplifying
organisational structures. It also means dismantling the webs of complex
legal arrangements big banks often use in order to avoid taxes or
burdensome regulations.
However, although the reforms are likely
to be far-reaching, the FSA believes that UK banks are on the way to
carrying them out, and has set an earlier deadline – June next year – to
be able to pass the relevant tests.
An FSA spokesman said:
"Recovery and resolution plans are an important part of the various
measures being put in place - along side the special resolution regime -
as a result of lessons learnt from the financial crisis. The plans are a
significant undertaking and will take time to get right."

HOPEFULLY THERE WON'T BE ANOTHER COLLAPSE SOON

Badboy wrote:HOPEFULLY THERE WON'T BE ANOTHER COLLAPSE SOON

We will get over this even if it takes some time Badboy .....let"s hope that never again will banks be able to do as they please with other peoples money.

They don't pass the safety test yet their Chief Executives are paid £millions and still get bonuses.

What a world we live in.

gillyspot wrote:They don't pass the safety test yet their Chief Executives are paid £millions and still get bonuses.

What a world we live in.

RBS had to be bailed out to the tune of £79 billion , but it"s Chairman walked off with a £500,000 Pension. The Government Licencing Authority aloowed Santander , a Spanish Bank , to open up in the U.K. about 3 years ago, it was supposed to be the "Peoples bank". It immediately bought up Halifax
Building Society. Now look at it another Bank with massive debts......did anyone check out the history of this Bank?

The EU has said it will curb Bonus payments but guess what.....the British Banks will not agree.