Investment banks weigh into insolvency row

Investment banking envoys are warning that the government must tread
carefully if plans to set up an insolvency framework which would see crippled
banks’ retail deposits transferred to another bank are pushed through.

The plans are part of the Special Resolution Regime, which has been floated
to stakeholders by the Treasury in conjuction with the Bank of England and the
FSA, but the designs have been given a frosty reception, the
FT
reported.

The London Investment Banking Association said that the knock-on effects
would have to be given serious consideration before any legislation was set in
stone.

‘This will be a major change to insolvency lawand practice in the UK It is
vital that unintended consequences are avoided said Liba chairman Alan Yarrow.’

The British Bankers Association and the
Association
of British Insurers have also been high profile detractors of the plans.

‘We have drawn attention to the care that will be needed if a special
resolution regime is to be introduced for deposit-takers, to ensure that the
implications for counterparties and for the markets more generally are properly
taken into account, added Yarrow.

Further reading:

Risk
lessons from the FSA