Banks claim reform could trigger crisis

THE UNCERTAINTY caused by the Vickers report risks generating a UK credit crunch, Britain’s major lenders warn in a confidential lobbying paper sent to the Treasury last week.
In the paper seen by City A.M., and in a meeting with the Treasury last week, banks said that the government’s lack of clarity over what losses their bondholders are exposed to could cause investors to shun their debt.

“There is a very real risk that senior funding markets will close to UK banks well ahead of the proposed 2019 implementation date as investors fear that they will be exposed to the bail-in regime if they buy debt which matures post-2019,” the paper says.

The main danger, the banks claim, is if the UK forges ahead of international regulatory efforts “on a unilateral [basis]”, causing “regime shopping”.

At issue is Vickers’ lack of clarity over bail-in bonds – debt that is written down if a bank collapses. As City A.M. revealed yesterday, banks are making some progress on the argument against a unilateral move, with the UK inclined to wait for EU bail-in measures.

It is understood that some bankers disagree with this lobbying approach on bail-in debt, believing that it could cause regulators to focus instead on restructuring the industry.