Jon Cunliffe warns British banks to say goodbye to 'too big to fail'
Bank of England deputy says no lender will be allowed to risk stability of the system
Britain's banks need to start preparing for a financial environment in which they are no longer "too big to fail", said Bank of England deputy governor Jon Cunliffe yesterday.
Taxpayers in Britain poured £65 billion (HK$849 billion) into banks during the 2007-09 financial crisis and the Bank of England wants to ensure that no bank is so big that letting it fail would risk the market mayhem seen when Lehman Brothers went bust in September 2008.
Liquidity risk [was] very probably underpriced before the crisis
Speaking at an event held by Barclays Bank, Cunliffe cautioned lenders that once new rules were in place to ensure that no bank was too big to fail, market liquidity would not return to levels seen in the run-up to the financial crisis.
"Liquidity premia were likely too low and liquidity risk very probably underpriced before the crisis," Cunliffe said.
One of the rules being finalised is a requirement to hold a buffer of bonds that can be used to shore up a failing bank once it has burned through all its regulatory capital.
But Cunliffe said the aim would not be to resurrect every failed business, such as by arranging "hasty shotgun weddings" or forced takeovers.