THE GLOBAL financial system is still threatened by banks that are “too big to fail”, according to a speech given yesterday by Sir Jon Cunliffe, deputy governor of the Bank of England.
Cunliffe, who is responsible for financial stability at the Bank, said: “I do not think we can say with confidence now that we could resolve a failing global giant,” highlighting the work still left to do and the continuing fragility of the international banking system.
The deputy governor added that the Bank’s aim was to make sure that “no institution, no matter how large, how complex, how international in its activities or to put it simply, no matter how systemic, is too big to be allowed to fail”.
Cunliffe also said that the continued progress of Eurozone banking union was one of the most important actions needed to secure the financial system, with the new resolution directive providing a “bedrock” for banking union.
He laid out the G20’s reform agenda for regulation, grouping it into prudential standards for capital and liquidity, regulating the shadow banking system, risks from the connected aspects of the system, as well as ensuring that no financial firm is so big that it cannot be allowed to fail by governments.
The ongoing progress of international co-operation was also drawn on by the deputy governor, who stressed that regulators in different countries needed to be able to rely on and understand other systems.
“In the absence of mutual trust, there will be increasing pressure to break up the global capital market. Regulators and supervisors who cannot trust the implementation of standards in other jurisdictions will defend stability in their own jurisdictions by raising barriers.”
Cunliffe also said that at times, differences on international standards between the EU and US “have threatened to balkanise what is now a global market.”