Talkin' about a resolution

16 December 2009 By Peter Thal Larsen Follow @Peter_TL

British proposals for winding down failing investment banks would force them to strengthen local subsidiaries. That could lead to a profound power shift in global firms. The plans aren’t perfect, or cost free. But they are a good start for making the system safer.

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The UK government unveiled a string of proposals to prepare investment banks for future crises and shield their clients and counterparties from the consequences of a collapse.

The proposals, published in a consultation paper, are the UK government's response to the collapse of Lehman Brothers, the Wall Street bank, in September 2008. Paul Myners, financial secretary to the Treasury, said the measures were necessary to prevent a future investment banking collapse from threatening the rest of the system and forcing taxpayers to step in. He also said adoption of the rules would increase London's attractions to international investors. "If we fix this we will have done a huge amount to fix the City of London," he said.

The proposals require investment banks operating in the UK to prepare for their failure by:

drawing up detailed resolution plans; gathering information that can be handed to administrators;

ensuring that key staff and suppliers can continue to work even after a collapse;

appointing Business Resolution Officers with responsibility for overseeing a winding up of the bank.

clearly segregating clients' assets so that they can be quickly returned in the event of a collapse.

adopting procedures to process trades and reconcile counterparty positions after a bank has failed.

The plans would also hand greater powers to directors of a bank's regulated UK subsidiary by giving them responsibility for drawing up and implementing the resolution plan. Myners acknowledged that the proposals go further than those discussed by other countries, but said the UK was hoping to take the lead in financial reform.

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