RERS and investment firms could face a major shakeup as the government takes steps to avoid bailing out any financial firm – not just banks which are already being reformed, announced Mark Hoban, financial secretary to the Treasury yesterday.
In an effort to avoid any repeat of the breakdown which led to the American insurer AIG being saved by the taxpayer in the US, or the systemically damaging failure of investment firm Bear Stearns, the Treasury yesterday launched a consultation on how to broaden the reform of resolution regimes.
The act intends to give the government wide-ranging powers over investing institutions, insurers and clearing houses, similar to those it gained over banks in the 2009 Banking Act – with the aim of preventing or resolving financial failures without burdening the taxpayer.
But sure to be controversial is a provision that makes financial sector firms liable for compensating “the customers/clients of any failed firm” and potentially the authorities.
The Treasury argues that the cost of such a measure is outweighed by the benefits of the resolution.