<div>BANKS will be required to write &ldquo;living wills&rdquo; to help regulators wind them down in the event of collapse, under a host of plans to be unveiled tomorrow in chancellor Alistair Darling&rsquo;s white paper on financial regulation.<br /><br />Financial institutions will be told to organise themselves in a way that allows the authorities to carve them up more easily should they threaten to collapse.<br /><br />Different subsidiaries will have to operate self-sufficient IT, payments and human resources systems, making it possible for regulators to pick and choose which part is bailed-out and which part is allowed to fail in the event of a crisis, thus addressing the problem of banks which are deemed too big to go under.<br /><br />The Financial Services Authority (FSA) will also be told to set maximum gross leverage ratios on financial institutions in an attempt to reduce financial debt levels.<br /><br />It will be mandated to impose higher capital held against trading books and there will be tighter liquidity and capital requirements for the riskiest or most systemic institutions.<br /><br />Systemically important hedge funds will also be regulated in this way, while structured investment vehicles (SIVs) and other off-balance sheet vehicles will be considered part of a financial institution for the purposes of regulation.<br /><br />FSA officials will address capital requirements on a &ldquo;bank-by-bank&rdquo; basis, assessing the level of reserves they believe an institution should hold, although the levels it sets are likely to hang on the outcome of similar policy initiatives in the US.<br /><br />Banks will also be required build up their levels of capital in boom times and a greater proportion will have to be held in gilts.<br /><br />There are unlikely to be any concrete announcements on boardroom remuneration, with the Treasury keen to see the outcome of Sir David Walker&rsquo;s review on corporate governance.<br /><br />But officials are understood to believe that banks will be moving to longer-term, deferred bonus structures for their traders of their own volition. Any that choose not to follow such guidelines will be deemed risky and therefore required to hold greater capital buffers.<br /><br />The Treasury could also opt to create a new council, staffed by members of the tripartite authorities, tasked with macro-prudential oversight. It was yesterday suggested that King would be made chair of such a committee, but it is unclear exactly what form the body would take, given the chancellor&rsquo;s wish to strengthen the FSA&rsquo;s supervisory powers.<br /><br />A new banking act will be passed in the autumn to implement some of the changes, although the Treasury believes that the FSA already has the instruments it needs to impose levels of leverage, liquidity and capital.<br /><br />However, the paper is not expected to include any firm proposals on what instruments regulators will be given to fulfil their roles.</div>